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Had Grandpa Been an Investor…
By JLP | March 12, 2007
Did you know that since the end of 1925, large cap stocks have had an annual average rate of return of 10.42%? Small company stocks have returned 12.69% over the same time horizon. Had my grandpa been able to invest $50 in each of these two asset classes each year from 1926 through 1988 (he died in early 1989), he would have accumulated nearly $950,000. Granted, I did use straight-line (linear) growth on his money, which wouldn’t have been the case in the real world.
Oh, and here’s something else:
Let’s assume that half of that $950,000 was lost to taxes, leaving the family $425,000. Had that $425,000 been able to continue to grow at that same rate untouched from 1989 – 2006, it would have grown to over $3 MILLION!
Pretty amazing, isn’t it? It just shows how investing even small amounts of money can grow to a substantial amount given enough time.
Topics: Investing | 10 Comments »
March 12th, 2007 at 10:21 am
I spend a lot of time preaching about the value of time with investment plans. The real test will be my investment portfolio when I hit 65. I’d love to average 12% over the next 41 years. I opened an automatic investment plan when I turned 21 with $1,000. I have $75/month going in which I never plan to stop. 41 years from now, we’ll check my progress. I’ve averaged 8.4% since October of 2003
March 12th, 2007 at 11:46 am
JLP — great point!
It is amazing to realize that the money you save directly ends up being only a tiny fraction of the total that you retire on. Compound interest is our best friend =)
Keep it up Russell! By the time you retire, the money you saved in your 20′s will be worth more than all the money you save in your 40′s, 50′s, and 60′s combined. If anything, I would say save more now if at all possible. It will be worth it!
March 12th, 2007 at 12:40 pm
Oh man, what a downer of a topic unless you’re young and in position to get an inheritance (I’m only half kidding). My grandfather was an small business owner that passed on a small fortune to my father, who then proceeed to completely blow all of it and abandon his family, condemning me and my siblings to grow up both fatherless and in poverty and with no hope of ever inheriting a cent (the depressing part). And in my 20′s (not really understanding any of this time-value of money stuff), I proceeded to save not one single dime of my earnings (even bigger downer).
Fortunately, I’ve done a very good job of catch-up – living proof that it’s possible to start late and finish early. But, I can’t help wondering how much further I might be if I hadn’t started with those handicaps. No compliants though – doing on my own has some value too.
March 12th, 2007 at 12:41 pm
Sorry about all the typos!
March 12th, 2007 at 2:55 pm
As a young man I was fretting between working a job that payed well but I disliked, or going back to school and finish my undergraduate degree. My boss reminded me that in four years I would be four years older no matter what. I could have a college degree or not, but time would march on regardless. I was back in school for the next semester and I am forever indebted to her.
The same principle applies to personal finance. Just because you aren’t in your 20′s doesn’t mean that compound interest doesn’t apply, especially with increasing life spans. Saving in your 40′s is the same thing as saving in your 20′s if you are living to be 80 or 100 …
March 12th, 2007 at 5:50 pm
amazing… No wonder the Kennedy’s are the Kennedy’s…
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