If you put $200 a month into a basic index fund at 22 and never touched it, you’d have around $759,000 by the time you’re 67. Wait until 32 and you’d have roughly $360,000, less than half, despite only starting ten years later.
That gap is compound interest. Most people don’t see the numbers until it’s too late to do much about them.
What compound interest actually means
Compound interest means you earn returns on your returns, not just on the money you originally put in.
Say you invest $1,000 and it earns 7% this year. You now have $1,070. Next year, that 7% applies to $1,070, not $1,000. The year after, it applies to the bigger number again. Over decades this becomes genuinely dramatic in ways that are hard to appreciate until you see the actual figures.
The S&P 500 has returned an average of around 10% annually before inflation over the past century, or about 7% after inflation. That’s the figure most financial planners use when modelling long-term growth, and it’s what the examples below are based on.
Compound interest needs time to work, and the relationship between time and outcome isn’t linear. Starting in your 20s instead of your 30s isn’t marginally better. It’s a completely different result.
What the numbers actually look like
Assume you invest $200 a month into a low-cost index fund growing at 7% annually and retire at 67.
Starting at 22 vs 32 vs 42
Start at 22: 45 years of growth, $108,000 total contributions. Final value: around $759,000.
Start at 32: 35 years, $84,000 contributed. Final value: around $360,000.
Start at 42: 25 years, $60,000 contributed. Final value: around $162,000.
Same monthly amount, same investment. A ten-year delay costs roughly $400,000 at retirement. Twenty years costs nearly $600,000.
The early investor who puts in less and still wins
Person A starts at 22, invests $200 a month for ten years, then stops completely at 32. Total contributed: $24,000. They never invest another penny after that.
Person B starts at 32 and invests $200 a month straight through to 67. Total contributed: $84,000.
At 67, Person A has around $370,000. Person B has around $360,000.
Person A put in less than a third of the money and invested for a tenth as long. The difference is that those first ten years of compounding did work that 35 years of later contributions couldn’t fully match.
What to actually invest in
Skip stock-picking. Most people who try to beat the market don’t, and plenty lose money making the attempt.
The standard long-term approach is index funds: funds that track a broad market index like the S&P 500, holding small slices of hundreds of companies without requiring active decisions on your part. Historically they’ve delivered those 7-10% annual returns without anyone needing to choose individual stocks.
Account type matters for taxes almost as much as what you invest in.
A Roth IRA lets you invest after-tax money that grows tax-free, with no tax on the gains when you withdraw in retirement. The 2025 contribution limit is $7,000 per year. If you’re under 30 and haven’t opened one, this is usually the right first move.
A 401(k) comes through your employer with pre-tax contributions, which lowers your taxable income now. Many employers match a percentage of what you put in. If you’re not contributing enough to get the full match, you’re leaving money on the table every single pay cheque.
Get the full employer match first. Then contribute to a Roth IRA. Then revisit the 401(k) with anything left over.
Where to start
Fidelity has no account minimums and no fees on most index funds. Works for complete beginners and is a solid place to open a Roth IRA or general brokerage account.
Vanguard invented the index fund. Their funds are consistently among the cheapest available and the platform is built for people who want to invest and not think about it constantly.
M1 Finance lets you set up a portfolio and then automates contributions. Good if you’d rather do the setup once and leave it running.
Acorns rounds up everyday purchases and invests the difference. Not the most efficient way to build wealth, but a genuinely low-friction way to start if the idea of committing a set amount each month feels like a stretch right now.
Betterment is a robo-advisor: answer a few questions, and it builds and rebalances a portfolio for you. Costs a bit more than doing it yourself, but takes almost no ongoing effort.
The excuses that cost the most
Waiting for “more money” is the one that probably costs people the most over time. Income tends to bring more spending with it, not more investing. A $200/month habit built at 24 is much easier to sustain than one you try to bootstrap at 34 after years of not doing it.
Debt is trickier. Credit card balances should come before investing — the interest rate on that debt will almost certainly beat anything you’d earn from returns. Student loans are different. The interest rates are usually low enough that starting to invest now, even while paying loans off, tends to come out ahead of waiting until the debt is gone.
Our guide to getting out of debt covers how to think through the balance, and our emergency fund guide explains what’s worth having in place before you start investing seriously.
The cost of “I’ll start next year”
Every year you delay is a year of compounding that doesn’t happen, and that time doesn’t come back.
The numbers in this article are just arithmetic. They’re not trying to be motivating — they’re what the maths produces when money compounds for long enough. If you’re in your 20s or early 30s, that time advantage is real and it’s finite.
Pick a platform and open an account this week. Start with what you can. Raise the amount as your income grows. The date matters more than the number.