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Ryan Marshall, CFP®
642 Wyckoff Avenue
Wyckoff, NJ 07481
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How powerful is compound interest?

How powerful is compound interest?

| September 24, 2021

What is Compound Interest? 

Simplified – Compound interest is interest on top of interest, earned 

And so what’s the big deal? Well, here is a great example that will put it into perspective for you: 

Say you have 2 Investors (Investor A & Investor B) investing $2,000 per year and each make 8% interest annually. 

  1. Investor A invests from age 18 to age 37 (20 years in total) & stops making investments 
  1. Investor B invests from age 26 to age 65 (40 years in total) & stops at retirement  

Who has more?  And Why?  

  • Investor A hypothetical account value = $795,543 
  • Investor B hypothetical account value = $521,331 

The $274,212 increase for investor A is from the “snowball” effect of compound interest.   Investor A had 8 additional years of growth by the time Investor B started, and Investor A already had over $25,000 saved while investor B just made their first $2,000 contribution.  By the time Investor A stopped contributing they had saved over $99,000 while Investor B only saved $43,393.50.  The difference between Investor A & B continues to spread further apart. 

You might be asking how much investor A would have if they continued to invest, and the answer is $986,221.45.  If you can start saving $2,000 per year at age 18 and earn an 8% interest rate you can become a millionaire by the time you are 66 years old. 

Don’t believe me? I included the data at the end of this blog post.   

Still don’t believe me? There is a real-world example from Ben Franklin and why he was a big fan - https://www.ryanjmarshall.com/resource-center/money/the-power-of-compound-interest 

Feel free to calculate your potential compounding interest amount here - https://www.ryanjmarshall.com/resource-center/investment/how-compound-interest-works 

Have additional questions? Click here to Schedule your free consultation with me where we can discuss how compound interest can make your money work for you.  

Age 

Investor A Invests 

8% 

Investor B Invests 

8% 

18 

$2,000  

$2,160.00  

$0  

 

19 

$2,000  

$4,332.80  

$0  

 

20 

$2,000  

$6,679.42  

$0  

 

21 

$2,000  

$9,213.78  

$0  

 

22 

$2,000  

$11,950.88  

$0  

 

23 

$2,000  

$14,906.95  

$0  

 

24 

$2,000  

$18,099.51  

$0  

 

25 

$2,000  

$21,547.47  

$0  

 

26 

$2,000  

$25,271.26  

$2,000  

$2,160.00  

27 

$2,000  

$29,292.97  

$2,000  

$4,332.80  

28 

$2,000  

$33,636.40  

$2,000  

$6,679.42  

29 

$2,000  

$38,327.32  

$2,000  

$9,213.78  

30 

$2,000  

$43,393.50  

$2,000  

$11,950.88  

31 

$2,000  

$48,864.98  

$2,000  

$14,906.95  

32 

$2,000  

$54,774.18  

$2,000  

$18,099.51  

33 

$2,000  

$61,156.11  

$2,000  

$21,547.47  

34 

$2,000  

$68,048.60  

$2,000  

$25,271.26  

35 

$2,000  

$75,492.49  

$2,000  

$29,292.97  

36 

$2,000  

$83,531.89  

$2,000  

$33,636.40  

37 

$2,000  

$92,214.44  

$2,000  

$38,327.32  

38 

$0  

$99,591.60  

$2,000  

$43,393.50  

39 

$0  

$107,558.92  

$2,000  

$48,864.98  

40 

$0  

$116,163.64  

$2,000  

$54,774.18  

41 

$0  

$125,456.73  

$2,000  

$61,156.11  

42 

$0  

$135,493.27  

$2,000  

$68,048.60  

43 

$0  

$146,332.73  

$2,000  

$75,492.49  

44 

$0  

$158,039.35  

$2,000  

$83,531.89  

45 

$0  

$170,682.49  

$2,000  

$92,214.44  

46 

$0  

$184,337.09  

$2,000  

$101,591.60  

47 

$0  

$199,084.06  

$2,000  

$111,718.92  

48 

$0  

$215,010.79  

$2,000  

$122,656.44  

49 

$0  

$232,211.65  

$2,000  

$134,468.95  

50 

$0  

$250,788.58  

$2,000  

$147,226.47  

51 

$0  

$270,851.67  

$2,000  

$161,004.59  

52 

$0  

$292,519.80  

$2,000  

$175,884.95  

53 

$0  

$315,921.38  

$2,000  

$191,955.75  

54 

$0  

$341,195.10  

$2,000  

$209,312.21  

55 

$0  

$368,490.70  

$2,000  

$228,057.19  

56 

$0  

$397,969.96  

$2,000  

$248,301.76  

57 

$0  

$429,807.56  

$2,000  

$270,165.90  

58 

$0  

$464,192.16  

$2,000  

$293,779.17  

59 

$0  

$501,327.53  

$2,000  

$319,281.51  

60 

$0  

$541,433.74  

$2,000  

$346,824.03  

61 

$0  

$584,748.44  

$2,000  

$376,569.95  

62 

$0  

$631,528.31  

$2,000  

$408,695.55  

63 

$0  

$682,050.58  

$2,000  

$443,391.19  

64 

$0  

$736,614.62  

$2,000  

$480,862.49  

65 

$0  

$795,543.79  

$2,000  

$521,331.49