Yes, because compound interest makes a dollar today worth more than a dollar earned a month from now. It’s why most experts encourage investors to start saving as early as possible. It will take less capital on a monthly or yearly basis to accomplish your goals when you start earlier.
Many financial professionals illustrate the power of compound interest using the “Rule of 72,” which shows clients how soon they can double their money assuming a particular interest rate. The Rule of 72 is a simplified equation; the interest rate is divided by the number 72 to get the number of years it would take to double an investment. This rule is based on an annual compounding schedule.
For example, an $8,000 investment that has a 5% interest rate would take 14.4 years to double based on The Rule of 72 (72/5 = 14.4). The Rule of 72 assumes that no additional money is being added to the principal balance. Adding money can significantly shorten the time it would take to double the value of an account. This is why many investors can, and should, take advantage of the ability to invest pre-tax dollars into an employee-sponsored account. Not only do you reduce your tax burden, you maximize the advantages of compounding your money.