Personal Finance April 14, 2016

    You're young and don't have much money. Better to postpone investing until you can put more into the market, right?

    Wrong. Many young investors overlook the major advantage they hold over older, wealthier investors: time. It's difficult to overstate the power of time in compounding investment returns. Consider this: During a 30-year time span, an investment that earns 6% per year, on average, will return a total of 474%. That's because the interest or return earned each year is added to the principal amount—known as compounding—and future return is earned on the larger principal. You can think of it as something like a snowball, which grows as it rolls downhill—the longer it rolls, in general, the bigger it gets.

    Time can have a terrific impact on the value of money, and even fairly small annual returns can turn into a significant total return over a long enough timespan. Here's an example:

    Annual return Total return after 30 years
    4% 224%
    6% 474%
    8% 906%
    10% 1,645%

    Source: Compound Interest Calculator. The returns shown above are for illustrative use only and not indicative of any investment available. Investing involves risk and is shown as an average although returns will vary from year to year including years where returns will be negative.

    The important thing to remember is: You don't have to knock the ball out of the park to benefit from investing. If you can just get started and give your money the chance to earn market returns over a long period, the potential benefits are large. Time in the market is more important than timing the market.

    How Schwab Intelligent Portfolios™ Can Help

    With as little as $5,000, you can invest in a diversified exchange-traded fund (ETF) portfolio based on your goals, risk tolerance and time horizon. Your portfolio can benefit from the power of compounding without the potential drag from advisory fees, account service fees or trading commissions—which are not charged for Schwab Intelligent Portfolios accounts.

    Schwab Intelligent Portfolios charges no advisory fees. Schwab affiliates do earn revenue from the underlying assets in Schwab Intelligent Portfolios accounts. This revenue comes from managing Schwab ETFs™ and providing services relating to certain third-party ETFs that can be selected for the portfolio, and from the cash feature on the accounts. Revenue may also be received from the market centers where ETF trade orders are routed for execution.


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