Consistent growth over a long period of time, or compounding, can produce astonishing results. If you invested $10k in S&P 500 index in 1957, when the index assumed its current name, your investment is worth over $7.28 million by the end of 2021.  For those who are mathematically inclined, the calculation is $7.28m = $10k*(1+ 10.67%)^65.  In addition to the initial investment amount of $10k, this wonderful outcome is driven by two elements:   10.67%, the average annual return of the S&P 500 index from 1957 to 2021, and 65, the number of years you remain invested.  The journey has not been easy, though.  From 1957 to 2021, there were 9 recessions and S&P 500 index experienced many 20%+ short-term declines, including a 57% decline from its peak during the 2008/2009 financial crisis.   To reap the benefit of compounding, one needs to have patience and conviction.

Individuals do not have control over the exact return that S&P 500 will produce in the future, but they do have control over how much they invest and how early they start to invest. For illustrative purposes, we pick three individuals, Jim, Jen, and Jack, and assume all three invest the same $200 monthly in a low-cost index ETF that returns 9% per year. Jim started investing at 25, Jen at 35, and Jack at 45, all with the goal of saving to retire at 65.  It is worth mentioning that US market indices have experienced positive returns over any rolling period of longer than 12 years, supporting all three’s 20-year and plus investment period.   The balance of their saving when they reach 65 years old are $886k, $359k, and $136k, respectively. So, start investing early and let the compounding do its wonder.