If you are not familiar with the term “compounding interest” let me explain. When your investment earns money, with your current interest rate, your earnings will begin to rake in earnings from it self. Then those earnings earn earnings and it goes on and on for the length of your investment. A small investment can start to accumulate a large amount of money very quickly do to this simple but amazing thing called compounding interest.

I will unfold an example for you to show exactly how wonderful compounding interest is and why the interest you earn on your investments you should not touch. Let's say you invest $10,000 today with an average annual rate of return of 12% for 10 years. During those 10 years each year you do not reinvest the interest. At the end of the 10 years you will have $22,000. That seems to be a reasonable gain from the looks of it, but when you compare it to an investment with compounding interest you start to see the power it holds. If you were to compound your interest and each year have your interest gain earnings as well you would have $28,394.21 at the end of the 10 years. That is almost a difference of $6400.

Are you convinced? I hope so. Nothing is more important, in the investing world, than time. When you are young time is your greatest advantage. By the above example you can see what compounding interest can do in just 10 years compared to simple interest. Imagine if you start investing as a 18 year old high school graduate and you start saving as much as you can at that age. By the time you are 60 years old you would have had 40+ years to invest and gain compounding interest on your investments.

Investing a large sum late in your life is nothing compared to the importance of starting young. Don't let your naivety of your youth impede your thoughts and distract you from doing what you should be doing now. Use your time to the best of your ability and start now.

Save now. Invest now. Be fruitful later.

If you invest $3000 in the stock market today and your money returned roughly 11% a year (S&P average), that $3000 will be worth $68,676.89 in just thirty years. That seems to be a lot of money coming only from $3000 and the truth it is but you could even get more. The S&P is a fairly safe index and the returns are nothing special. It proves to have an upward trend in the long run but there are many more funds out there that could bring you in a greater average yearly return than the S&P.

You may be saying, “Well what if I don't have that kind of money right now?” There is a clear answer to this. Most people that start off young aren't capable of stashing away three grand this early in his/her life but there are always ways to save money. Think about things you do during the day that you could stop doing and save a few dollars here and there. Do you go out to eat multiple times throughout the week? To you buy snacks from the snack machine at a certain time of the day? Do you buy the name brand products when off brands are just as effective? If you could change one habit in your life that would save you $3 a day and you save that $3 for 365 days that would equal to $1095, which is no small penny.

If you thought you couldn't find money to invest in the stock market think again. I just revealed to you an easy way to save money and if you stay with it you could save over $1000 in a year. If you were to invest $1000 a year for 20 years in a conservative S&P Index fund by the end of the 20 years you would have accumulated $199,020.88. See what a bit of saving combined with investing can do?

The earlier you start saving and the earlier you start investing the better outcome you will see. It is all about time and compounding interest. Stay informed with my next articles about the value of time valued money and compounding interest. They will sure to come soon.

Save now. Invest now. Be fruitful later.