The Power of Compound Interest
Updated: Apr 6, 2020
HOW TO TURN $100 A MONTH INTO $450,000 AT RETIREMENT:
To save you the time of reading the article, I will go ahead tell you the secret of how to do it. All you have to do is invest $100 a month in an S&P 500 Index Fund from the ages of 16 to 64. That’s it! Assuming the stock market’s historical average rate of return is 7% per year.
THAT IS THE POWER OF COMPOUNDING INTEREST!
Starting Value = $0.00
Contribution = $100 per month (equals $1,200 per year)
Historical Market Average Return = 7%
Years = 48 years
Ending Value = $453,599
*computed on a compound interest calculator
That is $56,400 in actual contributions and $397,199 in profit!!! Yes, you are reading that right. By investing $100 a month for 47 years you would have contributed $56,400 and profited $397,199 from the compounding interest of an index fund.
Here is the year to year breakdown to illustrate the power of compounding interest. Notice how fast your money compounds the longer you stay invested.
THE PROOF IS IN THE PUDDING!
Here are the annual returns from the S&P 500 for the past 20 years, as you can see the average rate of return over the given time frame is 7.28%, which is very close to the historical average of 7%.
I can hear the complaints all across the country. How can you expect someone to save $100 a month throughout a lifetime?
Are you kidding me? It’s actually easy if you apply yourself and buy what you need, not necessarily what you want. If you discipline yourself early in life to save $100 per month, then later in life, as you earn more money, you can save a lot more per month and possibly save into the millions. The sky is the limit, and the decision is yours!
If you are reading this as a teen, here is a list of possible jobs to get you started in the workforce.
Top JOBS For TEENS - don’t be too proud to work!
Fast food industry
Lawn and garden care
Newspaper delivery or printing press
Clean and detail cars
Taxi or other car delivery services
Delivery food driver by bike or car
House and office cleaning
Cell phone store
Gym or swimming pool
Ice skating rink
DJ or music artist
Umpire sporting events
I can give advice and motivation all day long, but it is up to you to get out there and make it happen. Be a doer, not a worrier or a follower!!!
May the power of compounding interest be with you!
COMPOUND INTEREST FUN FACT!
How much do you think you have to save each month to become a millionaire if you start saving at the age of 16?
Compound Interest Computation:
Beginning Amount = $0.00
Years = 47
Rate = 7%
Monthly Contribution = $250
Ending Value = $1,096,607
That is $141,000 of your contribution and $955,607 profit!
TALK ABOUT A CHALLENGE! The choice is yours!