(NC)—Kick a small ball of snow into motion from the top of a hill and by the time it gets to the bottom, it will be noticeably larger. That’s the snowball effect – and you may be able to get the same growth effect in your investments.
By making even a small investment and leaving it to grow – the income it generates is reinvested – or compounded – and over the longer term, your small investment will grow exponentially according to Investors Group financial planning expert Myron Knodel.
“The key is to get your financial snowball rolling as soon as possible. The sooner you invest, the longer your money will have to grow. And that usually means more wealth at the end of the road,” Knodel said.
Here is a simple example of the power of compounding:
• You invest $10,000 at 10%, and in a year you have earned $1,000 in interest.
• You add that to the original investment for a new total of $11,000, and the following year that new total earns $1,100 in interest at the same rate.
• Assuming there was no immediate tax on the interest, you now have a total of $12,100 invested at 10%.
Knodel says a professional advisor can help you devise a plan to take advantage of the power of compounding.
This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contacta financial advisor for specific advice about your circumstances. More information on this topic can be obtained from your Investors Group Consultant.