The Power of Time

Investment growth doesn't just add up over time, it builds on itself: each year's growth becomes part of the amount that grows the following year. This snowball effect is called compounding, and it means the single biggest factor in how much money you end up with often isn't how much you invest, it's how long you leave it invested.

Here's the effect in action: two people each invest $200 a month at the same average return. One starts at age 25, the other at age 35 — just a 10-year head start. By age 65, the early starter typically ends up with roughly twice as much, despite investing the exact same amount each month for the same total number of years minus that gap.

Starts at 25:  invests for 40 years  →  ends up with roughly $X
Starts at 35:  invests for 30 years  →  ends up with roughly half of $X

The effect where investment growth builds on itself, so each year's growth adds to the amount that grows next year, is called ____.

This is also why the popular idea of waiting for the "perfect moment" to start investing usually backfires. Every month spent waiting is a month compounding didn't get to work — and no one can reliably predict short-term market moves anyway. Starting with a small, imperfect amount today generally beats waiting for a bigger, more confident amount later.

Two people invest the same amount monthly at the same return, but one starts 10 years earlier. What usually happens by retirement?

Waiting for the "perfect moment" to start investing is generally a better strategy than starting now with a smaller amount.