The Power of Compound Interest

A reminder to my readers:

Compound interest is truly amazing. Compound interest is when your interest starts earning interest, and your investments grow like crazy!

In case you didn’t believe me the first time I wrote about it, here is a visual from my investments.

Since March of 2010, I have been investing $50 a month in my Roth IRA. That is $600 a year- not even a month’s rent for me. Four years of investing $600 a year= $2400 invested. Not a whole lot. Less than dinner and a movie once a month.

But…please look at the amount of compound interest I have earned. The gray line is the amount I initially put in, and the green line is the amount I have earned in interest.

Compound Interest at Work!
Compound Interest at Work!

If you eyeball it, you will notice my investment is worth about a third more than I put in out of my own money. See how the green part is growing bigger and bigger and bigger relative to the gray part? That is compound interest! (The dips are just market variations, I don’t worry about those because I don’t need this money for a long time). This picture is only showing one year’s worth of growth- so imagine what the growth will look like when I retire in 37 years!

I’ll send you a picture of my compound interest when I retire from my tropical island.


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