What Compound Interest Can Do Over Time
Most people have a general idea of what compound interest is.
But I think very few truly grasp just how powerful, and surprising, it can be.
Let’s do a quick thought experiment.
Say you invest $1,000.
You earn 5% per year for 30 years. At the end of that period, you’ve got about $4,300.
Not bad, right?
Now, what if you had earned 10% instead? You might think, “Well, 10% is double 5%, so I’d have about twice as much.”
But that’s not how compounding works.
At 10%, that same $1,000 turns into over $17,000.
That’s not 2x the result.
It’s around 4x.
And over 40 years?
· At 5%, you’d have around $7,040.
· At 10%, it grows to about $45,250.
That’s 6x the amount, for the same $1,000[1].
This is the quiet, snowballing force of compounding.
It’s a good time to ask: Could playing it safe with lower expected return investments have long-term tradeoffs?
So What Does This Mean For You?
Ask yourself:
How long are you really planning to invest for?
If you’re in your 30s or 40s, you may have 40+ years of investing ahead. But even if you’re approaching or already in retirement, the investing horizon likely stretches another 20–30+ years, especially if you want your money to last or have something to pass on to future generations.
The problem?
I feel like most people make investing decisions based on short-term news, short-term feelings, and short-term fears versus the time horizon of each dollar.
I think it’s human to do that and that we can all of near term biases we should take into consideration.
When people lean toward lower-volatility investments like savings accounts, CDs, or bonds, it’s often because they’re seeking peace of mind. The returns may be smaller, but they feel safer.
Have you ever considered how much even a few percentage points in return could add up to over a lifetime?
Now, to be clear: bonds and more conservative investments could have a place in many portfolios. Especially when managed strategically.
Volatility can feel uncomfortable in the moment.
I think it’s worth considering: could avoiding short-term discomfort lead to long-term regrets?
Let’s Talk About Your Financial Future
If you’re not sure how your money is working for you right now, or how to structure your portfolio for the long haul, it might be time to have a conversation.
I help individuals and families build plans for them, through all of life’s seasons. We don’t chase hype. We don’t time the market. But we do build with intention and a long view.
Want to see what that could look like for you?
Click below to schedule a no-pressure, no-obligation meeting.
It could be the conversation that helps you go from guessing… to building a strategy that works for decades, not just days.
[1] All compound interest calculations can be recreated using this compound interest calculator
Additional Disclosures: The material contained in the newsletter is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation, or needs of individual investors. This material is not intended to provide and should not be relied on for tax advice. Any information contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated. The information provided has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the material discussed. All examples are hypothetical and are for illustrative purposes only, individual results will vary. Securities Offered Through Valmark Securities, Inc.Member FINRA, SIPC Investment Advisory Services Offered Through Valmark Advisers, Inc. a SEC Registered Investment Advisor 130 Springside Dr., Akron, Ohio 44333-2431*1-800-765-5201 Spearman Financial Services is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc