One of the strategies I use to build wealth is to let compounding work in my favor. The power of compounding with time can yield outstanding results. The higher the percentage earned and the longer the time, the greater the return. The table below shows the multiplier effect of compounding by percentage earned and time.
| Multiplier by Percentage Return | ||||
|---|---|---|---|---|
| Years | 4% | 6% | 8% | 10% |
| 10 | 1.5 | 1.8 | 2.2 | 2.6 |
| 20 | 2.2 | 3.2 | 4.7 | 6.7 |
| 30 | 3.2 | 5.7 | 10.1 | 17.4 |
| 40 | 4.8 | 10.3 | 22 | 45 |
| 50 | 7.1 | 18 | 47 | 117 |
| 60 | 10.5 | 33 | 101 | 305 |
For example, $1000 invested at 4% will be worth $3,200 in 30 years. At 10%, the value is $17,400 after 30 years or a whopping $305,000 after 60 years. The great news is that 10% average returns are achievable. 10% is the average return of the stock market since 1926.
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3 comments:
My husband and I have been practicing this for 25 yrs and we now have a retirement to look forward to in the next 15 yrs. I think we will be almost able to keep us our living standard. Also keep no debt except a mortgage. Use older model cars it saves on insurance and licensing, and the value of a new care drops easy $3ooo. when you drive it off the lot.
A Life Uncommon,
Thanks for your comment.
Congratulations. It looks like you are well on your way to a comfortable retirement. Good luck.
Honestly I do not believe that current generation will achieve 10 or even 7% annualized returns.
Than we have to discount inflation. Something tells me that people will be lucky if they manage to preserve their money from inflation.
Particularly with early retirement and current longevity. One should count for 30-40 years for the nest egg to lasts.
This is means forever, as 3% a year..this should last and passed on to the kids.
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