Saving doesn't create much of a return.
Without earning a return, you can't take advantage of compounding.
Investing creates a return for your money, which allows compounding to work.
Compounding is the magic that happens when you start earning a return, not only on your contributions, but also on your prior year returns.
If you invest $1,000 a year, and earn 10%.
In year 1, you would earn $100.
In year 2, you would earn $110 (not $100), because you earn 10% on $1,100.
Compounding really does wonders when you give it time and consistent contributions.
Look at this example:
This assumes a $500 per month contribution over 40 years.
The orange line assumes no return.
The grey line assumes an 8% return.
Without compounding, you'd have $240K.
With compounding, you'd have $1.6M.
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