When it comes to reliably building wealth, the secret ingredient isn't an aptitude for stock picking or a complicated budget — it's time.
Legendary investor Warren Buffett has called compound interest an investor's best friend because it grows at a faster rate than simple interest, since it earns returns not only on your initial investment but on the interest you accumulate as well. And the longer your money has to grow, the more interest it can earn.
Buffett compared compound interest to a snowball that grows by rolling down a hill, and said investors should take advantage of it by starting as early as they can.
"I started building this little snowball at the top of a very long hill," Buffett, whose fortune is over $120 billion, said in 1999. "The trick to have a very long hill is either starting very young or living to be very old."
To illustrate the power of compound interest, here's a calculator you can use to see how your money might grow under different circumstances.
You can try out varied contribution amounts at different average interest rates over a wide range of time. Simply punch in your desired numbers and run the calculation.
