Seed Money

Seed money is the first meaningful lump sum you build before putting money to work. The name fits: compounding needs something to compound. There is no fixed threshold, though people often set a first target such as 10,000 or 100,000.

It matters because the same return on different principal produces entirely different outcomes. Ten percent on 1,000 is 100; on 100,000 it is 10,000. Early on, how fast you accumulate matters more than what return you achieve.

So at the seed-building stage, savings rate beats investing technique. Someone saving half their income arrives far sooner than someone squeezing out an extra percentage point of return.

You need not postpone investing until the sum is complete, though. Starting small teaches you how you actually react to rises and falls, and that practice reduces the mistakes you make once real money is involved. The accumulation phase shows little visible progress, which is where most people give up. Breaking the goal into reachable milestones keeps it going.