2. Time is Money: Maximize Your Wealth with the Power of Compounding Returns

One of the most powerful investing concepts is "compounding returns," where time becomes your best ally. Compounding happens when your investment gains generate returns of their own, creating a snowball effect over time.

For example, if you invest $200 at a 10% annual return, after one year, you’ll have earned $20. In the second year, if you earn another 10%, you won’t just earn $20 again—you’ll earn $22, as the returns from the first year are also now earning returns.

To understand the impact, let’s take a look at a simple example.

Imagine starting with $200 per month invested at age 20 with a steady 7% average annual return. After 10 years, the total investment of $24,000 grows by $10,617 in returns (shown in light green in the chart below). But fast-forward to 50 years, and the initial $120,000 invested has grown to over $1 million. Almost $970,000 of this growth comes purely from compounding!

In contrast, if someone started investing $200 monthly at age 30, with the same 7% return, they would have invested just $24,000 less than in the first example by age 70. However, their total balance would be about $565,000 lower. This stark difference emphasizes how starting early amplifies the power of compounding.

The takeaway? The sooner you start, the more time your money has to grow. And even if you’re beginning later, every year counts—whether you’re 20, 40, or 60, starting now is always better than waiting.