Young Canadian Investor #1 – Compounding is the Point
The point of investing is to use compounding to get yourself closer to your financial goals. It can seem like magic at first, but compounding simply refers to how an investment will grow exponentially if you regularly contribute to it and allow it to grow over large periods of time.
$1 invested that grows on average 7% per year will become $3.87 in 20 years.
$1 invested with monthly $1 contributions that grows on average 7% per year becomes $511.41 in 20 years.
When it comes to putting money away for the benefit of your future self, there really isn’t much else to say.
That said, to make compounding work for you, you need to know which investments have the best expected return, which of them fit your financial situation, and how to go about acquiring them. To learn a little bit more about getting started, you can read my intro to investing here.
Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.