You may remember the grammar school story of early American colonists buying what was to become Manhattan Island from Native Americans for $24 worth of trinkets. What you may not know is that if those Native Americans had invested the $24 at 8% return (about what a diversified portfolio should return over time), they would have enough wealth accumulated today to buy back all the real estate on Manhattan and have several hundred million dollars left over! That’s the power of compound growth.
Though this startling tale may seem farfetched, it’s technically correct and makes an important point. Employees need to be using the miraculous effects of
compounding by investing over time to fund their futures. Even Albert Einstein said, “compounding is the most powerful force in the universe.” The easiest way for employees to use compounding is to salt away as much as feasible into the company’s 401k Plan. Not only will your contributions save you taxes today, but the taxdeferred compounding super charged engine of the 401k will provide the horse power needed to make more likely a financially secure retirement. The trick is to start early.