What is the power of compounding interest, and why does it matter? If you haven’t already, check out this article on why investing early vs late matters. In that post, I go into depth the different outcomes you’ll ultimately be at depending on when you start investing. Spoiler alert: the earlier you start, the better.
In the previous post, the charts showed what would happen if you invested $1000 every year until you retire. What would happen if you only invested $1000 and didn’t touch it at all? How much would you end up with when you retire? What is the power of compounding interest? Keep reading to find out!
In the chart below, the chart shows what would happen if you invested just $1000 at the beginning, and how much that would amount to when you retire. For example, starting at age 20, by investing and holding, the $1000 ultimately amounts to over $40,000. Can you imagine, that $1000 you initially invested grew by 40x over the course of your lifetime. Whereas, if you started at age 30 instead, the same $1000 amounts to just over $20,000. By waiting 10 years, that amount practically got cut in half. This is what is meant by the power of compounding interest. It’s not about timing the market, it’s about time in the market. The longer the time horizon, the higher the amount.
If we really think about it, $1000 per year really isn’t that much. It’s putting away approximately $84 every month. This is why every dollar counts, and why fractional shares are such a great invention. It lowers the barrier to entry so that you can invest with as little as $1. 
