You’ve made your money. You’ve saved it, and resisted the marketing departments of billion-dollar companies. Now what? How does your savings make you more money?
You invest it. Investments can range from gold to real estate to beanie babies. But for our purposes, we will be investing in the stock market.
The stock market can be scary. As young adults, our generation witnessed the Great Recession, when the markets crashed around the world and we heard of people losing lots of money. And it’s true, the stock market can go down, and you can lose money. But over the long run, history shows that the stock market will always go up. Need proof? Here’s a chart of the Dow Jones Industrial Average, a measure of how the market as a whole is doing, over the last 110 years. (The Dow Jones is made up of 30 of the biggest companies in the stock market such as Apple, Exxon Mobil, and Nike)
See that little downturn at 2009? That was the Great Recession. Since then the market has recovered and is higher than it ever has been. See that big downturn at 1929? That was the Great Depression, the worst financial disaster the United States has ever seen. 
Yet the market continues to go up in the
years following.
The stock market will go up and down, and there is no way to predict what it will do tomorrow, next month, or next year. But over the long term, it averages out to gain about 7% per year.
I’ll be using a 7% return to calculate any future value of money as I’ve already done a couple times, and that 7% will be compounded. Compound interest is when the interest you earn is added to your total, and then interest is earned on that interest. For example, if you had $100 and earned 10% interest, after the first year you would have $110. Then you’d earn 10% interest on that $110, and after year 2 you’d have $121. Year three you’d have $133, and so on.
The effect of compound interest is amazing over time, and Albert Einstein was even quoted saying, “The most powerful force in the universe is compound interest” (actual fact despite my meme).
Compound interest will turn a $1,000 investment every year for the next 40 years into $228,584.03.
If you want to try other amounts or years, play around with this online calculator and plug in any value you want, then put 7% for your interest rate!
(Pictured: Me at Gooseberry Falls State Park, MN June 2015)