Compound interest allows any interest earned to then accrue interest on itself, so over time a small amount of money invested earlier will earn more than a large amount of money invested later. That’s why it’s so much easier to end up a millionaire if you start putting away cash in your 20s.
Krawcheck shares an example of how this works on the Ellevest blog. She writes:
Say you invest $100 today and earn 10 percent on it in the coming year; that’s $10, which means you then have $110. If you earn that same 10 percent return the next year, you earn it on the $110. So you earn $11, not $10. Do it again, and the same 10 percent return earns you $12. And so on and so on. And over time, it adds up to a lot.
Krawcheck points out an important financial lesson that many fail to understand: It’s never too early to begin investing.
“Even if you’re thinking, ‘I don’t have a lot of money right now,’ you need to save for future you,” she says.
Even if you can only contribute $50 or $100, start there. Although entering the stock market might seem intimidating, it doesn’t need to be. Here are a few low-stress ways to start investing:
- Sign up for your employer’s 401(k) plan and take full advantage of any company match, which essentially gives you free money.
- Contribute to an individual retirement account that offers tax benefits, like a Roth IRA or a traditional IRA.
- Use a micro-investing app like Acorns, which helps you begin by investing small amounts of your “spare change.” The app rounds up your purchases to the nearest dollar and automatically puts your coins to work.
- Try other apps that aim to make investing simple and accessible.
- Consider automated investing services known as robo-advisors that can help you out no matter how much you have in the bank.
- Research low-cost index funds, which Warren Buffett recommends.
There’s no guarantee that the market will perform in the future. Your returns will vary based on which accounts you choose, when you start investing and how much you contribute. Still, as Krawcheck reiterates, the earlier you start, the better.
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