Let’s say you start with $10,000 to invest, you’re 30 years old, and are able save another $3,000 every year to invest as well.
Let's play with the PV calculator
- In 10 years you would have saved and earned a total of: $61,120.68
- In 20 years you would have saved and earned a total of: $161, 683.32
- In 30 years you would have saved and earned a total of: $359,504.91
- In 40 years you would have saved and earned a total of: $748,649.91
- In 42 years you would have saved and earned a total of: $863,339.29
In between the end of year 40 and the end of year 42 you made: $863,339.29 – $748,649.91 = $114,689.38. You just made over $100,000 in two years saving $3,000 a year and starting with $10,000. Not bad at all! What used to take you 10 years to make ($100,000 difference between years 10 and 20) now took you less than 2 years to make. That is the power of compound interest.
Let’s say you pick really well, and your stocks return 10% or 12% over a long period of time. If that 7% changes to a 10% you now have $2,160,547.92 in 42 years opposed to $863,339.29. That is a massive difference! And the best way to create that difference is by purchasing high quality stocks at good prices that generate above average rates of return, and holding them for a long time.
