What is a key reason early investing can lead to much higher retirement balances?

• A. Because it guarantees higher returns.
• B. Because reinvested earnings generate their own earnings over time.
• C. Because taxes are lower on long-term investments.
• D. Because fees disappear if you start early.

Answer: (B)

The key idea is compounding. When you reinvest the earnings from your investments, those earnings start earning returns themselves. The longer you leave your money invested, the more opportunities those reinvested gains have to grow, so your balance grows faster over time. Starting early means more compounding periods, which can lead to a much larger retirement nest egg even if you contribute the same amount each period. It’s not about guaranteed higher returns, taxes, or fees disappearing; it’s about money earning money and building momentum the longer it has to compound.