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The Power of Compounding

Imagine investing $2,500 when a 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 an average annual rate of return of 10%--a conservative estimate of the stock market's historical average annual rate of return over the very long term.)

And you can make those results much more dramatic! Say you were to invest that $2,500 until he or she reaches 18 years of age. (or, say, you start when the child is just born!)

Your total investment over the 14 year period would be $35,000. That investment could be expected to grow to over $6 million by the time the child retires! The chart below shows the results of compounding based on an average annual return of 10%. (Which is the growth rate--including dividends--of the market in general over the long term, according to Ibbotson Associates, the Chicago based research firm).

Also read Give Them a Head Start.

$2,500 invested

at ages five and six

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

$2,500 invested

from age five to age 18

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

Calculate your
future wealth

Anticipate Your Wealth

at retirement--based on

an average annual rate of return of 10% *

(The calculation is based on investing $2,500 annually until you are 65 years of age)

Change The Rate of Return


* 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%.