University of Central Florida (UCF) FIN2100 Personal Finance and Investments Final Practice Exam

Starting to invest early provides the significant advantage of taking advantage of compound interest. When money is invested, it has the potential to earn interest not only on the initial principal but also on the interest that accumulates over time. This effect, known as compounding, can significantly increase the total amount of money accumulated in an investment account.

For example, if someone begins investing at a young age and continually contributes over the years, the interest earned each period is added to the principal, which then earns interest in subsequent periods. The earlier one starts investing, the longer the money has to grow through this process. As time goes on, even a small initial investment can lead to substantial wealth due to this exponential growth.

In contrast, the other options do not reflect benefits associated with early investing. Accumulating debt more quickly and minimizing savings are clearly disadvantages rather than advantages. Avoiding all risks associated with investing is unrealistic, as all investments carry some level of risk; however, investing early can help spread out and mitigate those risks over time through diversification and taking a longer-term perspective.