Your browser settings have cookies disabled. Some features of the site are not available or will not work correctly without cookies. To do so, refer to the help section of your Web browser.

StateFarm Canada is now Desjardins Insurance

State Farm® Canada is now Desjardins Insurance and your local State Farm Agent will now be known as your Desjardins Agent.

Please visit desjardinsagents.com/change-from-state-farm-canada for more details.

Looking for the State Farm USA site? Visit it here: statefarm.com.

Your province

Skip to content

Compounding your investments

Whether you're investing for retirement, higher education or a new home, knowing how quickly your investments may grow will help your decision-making process. Reinvesting, or compounding, your earnings can make a difference in your investment account's growth.

For more information, contact DFS Investments. They can help you develop a plan to fit your financial goals.

What is compounding?

Compounding occurs when you reinvest your earnings and/or dividends in the fund. You may not see the benefits of compounding right away but as earnings begin to accumulate, growth can gain momentum.

Use the Rule of 72 to see how soon your investment may double

How the Rule of 72 Works

  1. Find the estimated rate of return for your investment. Past performance doesn't guarantee future results, but it can tell you how it can perform in different market conditions.
  2. Divide 72 by your estimated rate of return. For example, money invested in a fund with an estimated return of 6% may double in 12 years (72/6 = 12).

Using the Rule of 72, the chart below shows you how compounding might play out over a 20-year period with a $1,000 investment. We used a 6% estimated rate of return.

Years invested ending balance

Year 1 — $1,060

Year 2 — $1,124

Year 3 — $1,191

Year 4 — $1,262

Year 5 — $1,418

Year 6 — $1,503

Year 7 — $1,593

Year 8 — $1,689

Year 9 — $1,790

Year 10 — $1,897

Year 11 — $2,011

Year 12 — $2,132

Year 13 — $2,260

Year 14 — $2,396

Year 15 — $2,540

Year 16 — $2,692

Year 17 — $2,854

Year 18 — $3,025

Year 19 — $3,207

Year 20 — $3,399

Year 21 — $3,603

Year 22 — $3,819

Year 23 — $4,048

Year 24 — $4,291

Year 25 — $4,548

Year 26 — $4,821

Year 27 — $5,110

Year 28 — $5,417

Year 29 — $5,742

Year 30 — $6,087

Year 1 — $1,060

Year 2 — $1,124

Year 3 — $1,191

Year 4 — $1,262

Year 5 — $1,418

Year 6 — $1,503

Year 7 — $1,593

Year 8 — $1,689

Year 9 — $1,790

Year 10 — $1,897

Year 11 — $2,011

Year 12 — $2,132

Year 13 — $2,260

Year 14 — $2,396

Year 15 — $2,540

Year 16 — $2,692

Year 17 — $2,854

Year 18 — $3,025

Year 19 — $3,207

Year 20 — $3,399

Year 21 — $3,603

Year 22 — $3,819

Year 23 — $4,048

Year 24 — $4,291

Year 25 — $4,548

Year 26 — $4,821

Year 27 — $5,110

Year 28 — $5,417

Year 29 — $5,742

Year 30 — $6,087

The figures above are intended to show the principle of compounding. This hypothetical chart is for illustrative purposes only and doesn't represent any specific type of investment. It doesn't include the impact of expenses or fees, which would have reduced the results of the illustration.

As you can see, compounding made a small difference in the ending balances during the early years. However, as more earnings were added, compounding made a significant difference over time. Remember, this is a simplified example.

The importance of saving early

Time can be on your side. Saving for retirement early might make a dramatic difference in reaching your financial goals. In the example below, you can see the difference an early start makes. Remember, this is a simplified example.

Hypothetical illustration

Started investing at

age 25

age 35

Yearly contribution

$5,000

$5,000

Number of years

10 years

20 years

Total contributions

$50,000

$100,000

Rate of return

6%

6%

Valeur des placements à 65 ans

$425,304

$206,661

Started investing at

age 25

Yearly contribution

$5,000

Number of years

10 years

Total contributions

$50,000

Rate of return

6%

Valeur des placements à 65 ans

$425,304

Started investing at

age 35

Yearly contribution

$5,000

Number of years

20 years

Total contributions

$100,000

Rate of return

6%

Valeur des placements à 65 ans

$206,661

Mutual Funds are not insurance products and are distributed through representatives of Desjardins Financial Security Investments Inc.

Please read the applicable Fund Facts before investing. Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments.

Mutual Funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer.

Neither Desjardins Insurance nor its agents provide tax or legal advice. Please consult your tax, legal or investment advisor regarding your specific circumstances

Find an agent

Search
Top of page