The Power of Compounding
Imagine investing $2,500 when the child is five years old and another $2,500 when he is six years old and turning that $5,000 investment into more than $1 million by the time the child is ready to retire! (This growth is based on a an average annaul rate of return of 10%--a conservitive estimate of the stock market's historical average annual rate of return.)
And it can be much better than that! Say you were to invest that $2,500 until he or she reaches 18 years of age.
Your total investment over the 14 year period will be $35,000. That investment can be expected to grow to over $6 million! The chart below shows the results of compounding based on an average annual return of 10%.
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$2,500 Invested at ages five and six |
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|---|---|---|---|
| Year | Age | Invested | End Of Year |
| 1 | 5 | $2,500.00 | $2,750.00 |
| 2 | 6 | $2,500.00 | $5,775.00 |
| 3 | 7 | $6,352.50 | |
| 4 | 8 | $6,987.75 | |
| 5 | 9 | $7,686.53 | |
| 6 | 10 | $8,455.18 | |
| 7 | 11 | $9,300.70 | |
| 8 | 12 | $10,230.76 | |
| 9 | 13 | $11,253.84 | |
| 10 | 14 | $12,379.23 | |
| 11 | 15 | $13,617.15 | |
| 12 | 16 | $14,978.86 | |
| 13 | 17 | $16,476.75 | |
| 14 | 18 | $18,124.42 | |
| 15 | 19 | $19,936.87 | |
| 16 | 20 | $21,930.55 | |
| 17 | 21 | $24,123.61 | |
| 18 | 22 | $26,535.97 | |
| 19 | 23 | $29,189.57 | |
| 20 | 24 | $32,108.52 | |
| 21 | 25 | $35,319.37 | |
| 22 | 26 | $38,851.31 | |
| 23 | 27 | $42,736.44 | |
| 24 | 28 | $47,010.09 | |
| 25 | 29 | $51,711.10 | |
| 26 | 30 | $56,882.21 | |
| 27 | 31 | $62,570.43 | |
| 28 | 32 | $68,827.47 | |
| 29 | 33 | $75,710.22 | |
| 30 | 34 | $83,281.24 | |
| 31 | 35 | $91,609.36 | |
| 32 | 36 | $100,770.30 | |
| 33 | 37 | $110,847.33 | |
| 34 | 38 | $121,932.06 | |
| 35 | 39 | $134,125.27 | |
| 36 | 40 | $147,537.79 | |
| 37 | 41 | $162,291.57 | |
| 38 | 42 | $178,520.73 | |
| 39 | 43 | $196,372.80 | |
| 40 | 44 | $216,010.08 | |
| 41 | 45 | $237,611.09 | |
| 42 | 46 | $261,372.20 | |
| 43 | 47 | $287,509.42 | |
| 44 | 48 | $316,260.36 | |
| 45 | 49 | $347,886.40 | |
| 46 | 50 | $382,675.04 | |
| 47 | 51 | $420,942.54 | |
| 48 | 52 | $463,036.80 | |
| 49 | 53 | $509,340.48 | |
| 50 | 54 | $560,274.53 | |
| 51 | 55 | $616,301.98 | |
| 52 | 56 | $677,932.18 | |
| 53 | 57 | $745,725.39 | |
| 54 | 58 | $820,297.93 | |
| 55 | 59 | $902,327.73 | |
| 56 | 60 | $992,560.50 | |
| 57 | 61 | $1,091,816.55 | |
| 58 | 62 | $1,200,998.20 | |
| 59 | 63 | $1,321,098.02 | |
| 60 | 64 | $1,453,207.83 | |
| 61 | 65 | $1,598,528.61 | |
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$2,500 Invested from age five to age 18 |
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|---|---|---|---|
| Year | Age | Invested | End Of Year |
| 1 | 5 | $2,500.00 | $2,750.00 |
| 2 | 6 | $2,500.00 | $5,775.00 |
| 3 | 7 | $2,500.00 | $9,102.50 |
| 4 | 8 | $2,500.00 | $12,762.75 |
| 5 | 9 | $2,500.00 | $16,789.03 |
| 6 | 10 | $2,500.00 | $21,217.93 |
| 7 | 11 | $2,500.00 | $26,089.72 |
| 8 | 12 | $2,500.00 | $31,448.69 |
| 9 | 13 | $2,500.00 | $37,343.56 |
| 10 | 14 | $2,500.00 | $43,827.92 |
| 11 | 15 | $2,500.00 | $50,960.71 |
| 12 | 16 | $2,500.00 | $58,806.78 |
| 13 | 17 | $2,500.00 | $67,437.46 |
| 14 | 18 | $2,500.00 | $76,931.20 |
| 15 | 19 | 0 | $84,624.32 |
| 16 | 20 | 0 | $93,086.76 |
| 17 | 21 | 0 | $102,395.43 |
| 18 | 22 | 0 | $112,634.98 |
| 19 | 23 | 0 | $123,898.47 |
| 20 | 24 | 0 | $136,288.32 |
| 21 | 25 | 0 | $149,917.15 |
| 22 | 26 | 0 | $164,908.87 |
| 23 | 27 | 0 | $181,399.76 |
| 24 | 28 | 0 | $199,539.73 |
| 25 | 29 | 0 | $219,493.70 |
| 26 | 30 | 0 | $241,443.07 |
| 27 | 31 | 0 | $265,587.38 |
| 28 | 32 | 0 | $292,146.12 |
| 29 | 33 | 0 | $321,360.73 |
| 30 | 34 | 0 | $353,496.81 |
| 31 | 35 | 0 | $388,846.49 |
| 32 | 36 | 0 | $427,731.13 |
| 33 | 37 | 0 | $470,504.25 |
| 34 | 38 | 0 | $517,554.67 |
| 35 | 39 | 0 | $569,310.14 |
| 36 | 40 | 0 | $626,241.15 |
| 37 | 41 | 0 | $688,865.27 |
| 38 | 42 | 0 | $757,751.80 |
| 39 | 43 | 0 | $833,526.98 |
| 40 | 44 | 0 | $916,879.67 |
| 41 | 45 | 0 | $1,008,567.64 |
| 42 | 46 | 0 | $1,109,424.40 |
| 43 | 47 | 0 | $1,220,366.85 |
| 44 | 48 | 0 | $1,342,403.53 |
| 45 | 49 | 0 | $1,476,643.88 |
| 46 | 50 | 0 | $1,624,308.27 |
| 47 | 51 | 0 | $1,786,739.10 |
| 48 | 52 | 0 | $1,965,413.01 |
| 49 | 53 | 0 | $2,161,954.31 |
| 50 | 54 | 0 | $2,378,149.74 |
| 51 | 55 | 0 | $2,615,964.71 |
| 52 | 56 | 0 | $2,877,561.18 |
| 53 | 57 | 0 | $3,165,317.30 |
| 54 | 58 | 0 | $3,481,849.03 |
| 55 | 59 | 0 | $3,830,033.94 |
| 56 | 60 | 0 | $4,213,037.33 |
| 57 | 61 | 0 | $4,634,341.06 |
| 58 | 62 | 0 | $5,097,775.17 |
| 59 | 63 | 0 | $5,607,552.69 |
| 60 | 64 | 0 | $6,168,307.96 |
| 61 | 65 | 0 | $6,785,138.75 |
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Calculate Your Anticipate Your Wealth at Retirement--Based on an Average Annual Rate of Return of 10% * (The calculation is based on investing $2,500 anually until you are 65 years of age) |
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* Over the past 75 years, the average annual rate of return for the stock market as a whole has been 11%. Our calculations are based on a more conservative 10%. |