Benefits of Compounded Growth

Benefits of Compounded Growth

Investing in a retirement account like a traditional IRA or Roth IRA means that you can take advantage of compounded growth—and the sooner the better. When you start saving money in a retirement account, as the value of your investments goes up, that money is reinvested, so it’s growing faster than just the amount you are contributing. So if you invested, for example, $1,000 at a 4% interest rate and just left that alone, you’d have $ 1040 at the end of the first year and $1081.60 at the end of the second year. That’s compounded growth.


Compounded Growth Chart

So what does that mean for you right now? You can reap the benefits of compounded growth the minute you start saving. If you open a retirement account today and put in money on a regular basis, you could have considerably more money in 30 years than someone who started saving with the same amount of money later in life. Essentially, when you start saving is just as important as how much you save.

Starting to invest now, and taking advantage of compounded growth, can put you in a much better position financially when you retire. Even if you open an account with just the minimum and contribute just a little bit on a regular basis, it is a seed that can grow on its own, and one you can add to as it flourishes.