The Power of Starting Early and Reinvesting Dividends

Once you establish a foundation for your investment, you can help it grow by reinvesting any income dividends and capital gains your mutual funds pay you right back into the market. Compounding may produce dramatic results over time.

The sooner you begin investing, the more time you'll have to take advantage of the power of compounding. In fact, by investing early, you have the potential to invest less money – and yet earn considerably more – than someone who waits to invest.

Here's an example illustrating the difference that starting early makes. Two friends, Greg and Sue, invest $2000 a year – but at very different times. Sue gets an early start; she invests actively for eight years and reinvests all her earnings, but then stops. After that, she continues to grow her investment purely by reinvesting any earnings and letting them compound.

Greg, on the other hand, puts off investing; he's only starting to invest when Sue is finishing her active investment years. Greg invests actively for 32 years, compared to Sue's eight years.

Yet, you can see from the chart below that Greg earned considerably less than Sue, even though he actively invested four times as much time!

	Sue (started sooner) Total Investment: $16,000 Total Earnings: $515,188 Total Account Value: $531,188 Sue invested $2,000 a year for 8 years
	Greg (invested more) Total Investment: $64,000 Total Earnings: $378,496 Total Account Value: $422,496 Greg invested $2,000 a year for 32 years
	This chart assumes a 10% annual rate of return. It is for illustrative purposes only and is not indicative of the Bishop Street Funds' results. Actual investment returns and principal values will fluctuate. Total earnings and account value assume no taxes have been taken out - this would be possible with a Roth IRA account if you follow IRA rules (consult a tax specialist if you have IRA questions). Past performance is no guarantee of future results.

 

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