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Building Wealth on $1.67 Per Day!
By JLP | November 2, 2006
How’s that for a catchy title?
This post was inspired by the following comment I received from a reader:
This (and most of your other entires, and the PF community) have got me thinking about starting a Roth IRA for that lovely compounding interest (I’m only 19!). But when I contacted my bank (ING), they were utterly unhelpful. They said, okay, pick what funds you want to invest in, and how many shares of each and we’ll set it all up. Do you have any advice on what I should do without knowing my current financial situation? My rundown is: I have about 1,000 in savings, very little cc debt, and my student loans are locked in at low interest rates that I won’t have to pay off for years. I’m planning on starting out with $100 and adding 25-50 a month.
Although I can’t recommend a specific company or mutual fund to invest in, I will say to check out Vanguard and T. Rowe Price as both are stellar companies. You also might want to read this post from yesterday.
Her comment got me to thinking. At first glance, $50 per month doesn’t sound like much. It works out to be about $1.67 per day. However, don’t let the small amount fool you. Given enough time, $50 per month can grow into a substantial amount. Take a look at the three graphics and you’ll see what I mean. Don’t let all the numbers scare you away. The graphics are divided up based on the expected rate of return of 8, 10, and 12 percent. I used 19 as the starting age since that is the age of the commenter. Even at an 8% rate of return, $50 per month could grow to more $286,000 by age 65.
You can click on each graphic to see it larger.
Now keep in mind that these numbers were reached using a straight-line rate of return, which never occurs in the real world. Nor do these numbers reflect inflation, which will reduce the real value of the account at retirement. So, although $50 per month can grow into a substantial amount over a lifetime, it would be best to invest more if you can afford it.
Oh, and for those who want to play around with the numbers themselves, feel free to download the Excel file I used for this post.
Topics: Calculators, IRAs, Investing, Retirement Planning, Roth IRA |
