Compounding

"What do you consider the greatest invention of all time?" - Reporter
"Compound interest."
Albert Einstein
Many novice investors have a hard time grasping the concept of compounded earnings. So think of it this way: You know that $500 you charged on your credit card a few years ago and never paid off?
Funny how that balance has grown to over $3,500 even though you pay the minimum each month and have sworn off any further purchases.
That's how investing works, only you could've earned that $3,500 if you had invested the money instead of spending it on clothes and a new CD player.
Generation X versus The Baby Boomer
The most important aspect of compounding is to start early. The younger you start, the more you'll earn. See how this works in the table below, where one investor who starts younger but invests less money over less time actually ends up earning more.

Generation X		Baby Boomer
Age	Contribution	Age	Contribution
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54	$2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 No More	25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54	None None None None None None None None None None $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Total Contribution	$20,000	Total Contribution	$40,000
Total Earnings at 8%	$135,042		$91,524

Savings Goal: