Suze Orman says that it's better to start investing when you're young so that you can take advantage of compounding interest. Is she wrong?

She is absolutely correct, on both counts. Time is yor friend - the more time you have, the more your money will grow. The difference in the first 10 years may not look like much, but the difference between 40 to 50 years will be huge. I am sure in high school you were given the old story that if you start with a penny,and doubled it every day, by the end of a month you'd be a millionaire - and of course, all the students laugh at it- until they do the actual calculation.

If you make a smart choice, you can amass quite a fortune.

Mutual funds provide broad diversification, low cost, and professional management, while you enjoy the time to live your life. Even with a broad fund like the S&P 500 fund over the last 40 years, it has averaged a return of over 11% - which means if you invested $5000 in it for 4 decades, today you'd have about 3.25 million dollars.Now granted, taxes and inflation will take a bite out of that - but for sticking in $5K and doing nothing for 40 years, that is pretty damn good.

Unfortunately, there are still crowds of stupid people, who'd rather go buy lottery tickets, try a casino, or put their money in some idiotic Get Rich Quick scheme that always fails. That's also one reason why the rich get richer and the poor keep chasing their tails in a circle wondering why they can't get ahead.

Suze isn't the only one to talk about the benefits of compounding interest. Some (not all) mutual funds pay dividends, so know what you are buying. Your dividends work like interest and compound over time. Some stocks pay you dividends while you own them. It might be something like 20 cents every 3 months, so in a year you might get 80 cents. It might not seem like a lot, but the more shares you own the more dividends you earn. Curtisports2 gave a very good answer that the funds will sell when stocks are high and buy when low and do the work for you. Mutual funds are a safer investment than individual stocks, while you probably won't hit it big with a mutual fund you are also less likely to lose it all as you might with an individual stock. So yes, starting young gives your money more time to grow. If you want to play it safe stick with the mutual funds, if you are willing to take more risk consider the individual stocks. (You can do both - don't think of it as all or nothing!) Know your personal tolerance for risk and invest in what you are comfortable with.

Suze Orman used to have a tv show and be on infomercials and write books all to make money and build her own empire. Doesn't mean that everything she said or did was right, nor was it for everyone. These days though she is no longer on the circuit and has tweaked her comments to reflect "today" rather than "yesterday" so it depends on how current the information is that you're looking at as compared to the economy today if it would work or work for you now.

it's as simple as some people can do math and some can't, some can work with stocks and bonds and some can't, or some can deal with real estate and some can't. While Suze did provide good information don't use it unless you understand it thoroughly. Yes compounding interest does work.

She is not wrong. As an example. I bought whole life insurance ($5000) when I was 18. It cost about $92 a year. Most people say that whole life is not a good investment and certainly $92 a year is not a lot of money. Because I started young and due to compounding, the cash value of the policy is now $43,740 Not a lot of money but not bad for a small bad investment. (The death benefit is $59,656 and I no longer even have to pay the $92 a year premium. My total cost was about $4700 over 53 years)

Power of compounding is correct. BUT equity and mutual fund markets do have a risk. It is all right if and only if you invest and forget about cashing out. Unfortunately bank and other fixed income deposits earn too little interest.

Also it depends on your age and risk appetite.

I read somewhere that you should invest only 100 minus age in equities and the rest in bonds, savings accounts etc.

Eg: If you are 45 years, then 55% goes to equities. If you are 25 years, then also ONLY 75% in equities (including mutual funds).

But nowadays people follow 110 minus age or even 120 minus age as the norm. See below for a link.

http://www.investopedia.com/articles/investing/062...

No, she's correct. The compounding principle is not limited to interest. It applies to stock price gains that are realized when stocks are sold and then reinvested into other stocks, and stock dividends that are reinvested. A good mutual fund manager buys and sells stocks, bonds, real estate, commodities, constantly juggling things to maximize return. Over time, the market has historically proven itself superior to bank accounts.

Obviously early start benefits everywhere. You can accumulate more wealth by interest as well as principal sum. The question is not just of age. This is of earning and saving. As soon as you begin earning, it is advisable to save some portion and invest wisely.

She's right, but for many if not most investment-quality stocks the return is both capital gain AND dividends.

you better beware that bank interest and cd's are paying nothing, so compounding means nothing. Much better to be in blue chip stocks with total dividend reinvestment.

She is right only if the stock market keeps going up.

As an investor for over 25 years, I still watch her show.

"What do you want to buy?'