Our very own Marcus Holzberg, CFP® was recently featured in an article from CNBC. In it, he highlights the power of compound interest, explaining how consistent contributions starting at a young age can lead to exponential growth in investing.
According to CNBC's August 2024 Your Money retirement survey, 37% of non-retired Americans reported that they are "ahead of schedule (7%)" or "on schedule (30%)" with their retirement savings. The survey also found that 36% of retirees have nothing saved or less than $50,000 in retirement savings. Among those who feel good about their savings level, 42% say contributions made early in life are the primary factor for building retirement wealth – followed by low or no debt (38%), home equity or ownership (37%), retirement education (35%), and generous company retirement plans (35%).
Perhaps unsurprisingly, the earlier you start making contributions to your retirement accounts, the better off you will be financially down the road. This is because investment accounts grow with compound interest – otherwise known as 'interest on interest,' or reinvesting your returns to accumulate additional interest on your past investment. As Marcus states,
"[Compound interest is] the true secret to success in the stock market."
To illustrate the effect of compound interest, let us say you are 25 years old and open an investment account with $0. If you contribute $100 a month to that account with a modest rate of return of 5% that compounds monthly, at 65, you will have more than $152,000. However:
If you wait five years, the value of the account would be about $113,000,
If you wait ten years, the value of the account would be about $83,000, and
If you wait 15 years (when you're 40), the value of the account would be just under $60,000.
As you can see, the effect of compound interest becomes even more powerful over extended periods as the amount of earned interest grows. Therefore, it is important for individuals to start investing for their retirement early.
With the cost of living being as high as it is today, especially in certain areas of the country, many young professionals struggle to prioritize retirement savings early in their careers. Even so, taking the first step and beginning with small contributions is crucial. Whether you can put away $100 a month or even $10, the most important thing is to simply start now.
No matter where you are in your career, starting early with even modest retirement contributions can make a world of difference, thanks to the power of compound interest. The sooner you start, the better positioned you will be to secure your financial future. As time goes on and your income grows, so too should your contributions, and remember: start now, stay consistent, and let time work in your favor.
To learn more about strategies to build wealth and secure your financial future, check out the article here in CNBC featuring Marcus Holzberg, CFP®.
If you have questions about your financial plan and working with a financial advisor, check us out. You can schedule a complimentary, no-obligation call with us here!
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.