Course outline
Lesson 4 of 206 min read
The power of starting early
Ten years of head start can matter more than decades of extra contributions. Here's the math.
A tale of two investors
Alex invests $200 a month from age 18 to 28, then stops completely. Jordan starts at 28 and invests $200 a month all the way to 65. Assume both earn 7% a year, compounded monthly.
| Years investing | Total put in | Value at 65 | |
|---|---|---|---|
| Alex (18–28, then stops) | 10 | $24,000 | About $458,000 |
| Jordan (28–65) | 37 | $88,800 | About $419,000 |
| Both habits (18–65) | 47 | $112,800 | About $877,000 |
Alex put in less than a third as much money and still ended up with more, because Alex's money had ten extra years to compound. Starting early and never stopping does best of all.
Try it yourself
Change the starting amount, the monthly amount, the return and the years. Watch how the growth portion (the part you didn't put in yourself) takes over in later years.
Compound growth calculator
See how a starting amount and a monthly habit can grow.
An assumption, not a promise. Real returns change every year and can be negative.
- Balance after 20 years
- $95,718
- You put in
- $49,000
- Growth
- $46,718
Growth makes up 49% of the balance so far. Compounding speeds up the longer money stays invested.
How this is calculated
Each month, the balance grows by one twelfth of the yearly return, then your monthly amount is added:
balance = balance × (1 + 6% ÷ 12) + $200
It assumes the same return every year. It doesn't include inflation, fees or taxes, which all reduce real-world results.
Small and steady beats perfect
You don't need a lot to start. Many brokerages have no account minimum and let you buy fractions of a share. $25 or $50 a month builds the habit, and you can raise it as your income grows.
Key takeaways
- Time in the market does much of the work; your contributions do the rest.
- Starting with a small amount now can beat starting with a larger amount later.
- Any projected return is an assumption, not a promise.
Key terms
- Compound interest
- Interest earned on both the original amount and on interest already earned.
- Principal
- The original amount of money borrowed or invested, before interest.
Check your understanding
Quick quiz
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