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| Stocks & Investments |
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Finance > Stocks & Investments > Investing
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| Table:2 |
The Power Of Compounding |
| If you invest $2,000 a year for the first eight years of a 40-year
period with annual compounding at 10%, you will earn more than someone who invests
$2,000 a year from years nine through 40. The latter's total contribution would be
four times greater, yet it would earn 27% less.
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EARLY FUNDING |
LATE FUNDING |
| Year |
Contribution |
Year-end Value |
Contribution |
Year-end Value |
| 1 |
$2000 |
$2,200 |
0 |
0 |
2 |
$2000 |
4,620 |
0 |
0 |
| 3 |
2,000 |
7,282 |
0 |
0 |
| 4 |
2,000 |
10,210 |
0 |
0 |
| 5 |
2,000 |
13,431 |
0 |
0 |
| 6 |
2,000 |
16,974 |
0 |
0 |
| 7 |
2,000 |
20,871 |
0 |
0 |
| 8 |
2,000 |
25,158 |
0 |
0 |
| 9 |
0 |
27,674 |
2,000 |
2,200 |
| 10 |
0 |
30,441 |
2,000 |
4,620 |
| 11 |
0 |
33,485 |
2,000 |
7,282 |
| 12 |
0 |
36,834 |
2,000 |
10,210 |
| 13 |
0 |
40,517 |
2,000 |
13,431 |
| 14 |
0 |
44,569 |
2,000 |
16,974 |
| 15 |
0 |
49,026 |
2,000 |
20,871 |
| 16 |
0 |
53,929 |
2,000 |
25,158 |
| 17 |
0 |
59,322 |
2,000 |
29,874 |
| 18 |
0 |
65,254 |
2,000 |
35,061 |
| 19 |
0 |
71,779 |
2,000 |
40,767 |
| 20 |
0 |
78,957 |
2,000 |
47,044 |
| 21 |
0 |
86,853 |
2,000 |
53,948 |
| 22 |
0 |
95,583 |
2,000 |
61,643 |
| 23 |
0 |
105,092 |
2,000 |
69,897 |
| 24 |
0 |
115,601 |
2,000 |
79,087 |
| 25 |
0 |
127,161 |
2,000 |
89,916 |
| 26 |
0 |
139,877 |
2,000 |
100,316 |
| 27 |
0 |
153,865 |
2,000 |
112,548 |
| 28 |
0 |
169,252 |
2,000 |
126,003 |
| 29 |
0 |
186,177 |
2,000 |
140,803 |
| 30 |
0 |
204,795 |
2,000 |
157,083 |
| 31 |
0 |
225,275 |
2,000 |
174,991 |
| 32 |
0 |
247,803 |
2,000 |
194,690 |
| 33 |
0 |
272,583 |
2,000 |
216,359 |
| 34 |
0 |
299,841 |
2,000 |
240,195 |
| 35 |
0 |
329,825 |
2,000 |
266,415 |
| 36 |
0 |
362,808 |
2,000 |
295,257 |
| 37 |
0 |
399,089 |
2,000 |
326,983 |
| 38 |
0 |
438,938 |
2,000 |
361,881 |
| 39 |
0 |
482,898 |
2,000 |
400,269 |
| 40 |
0 |
531,188 |
2,000 |
442,496 |
| Investments |
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$16,000 |
|
$64,000 |
| Earnings |
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$515,188 |
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$378,496 |
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The amount of wealth accumulated is also substantially affected by seemingly
small differences in the annual rate of return. For example, a $10,000 initial
investment, with nothing added to it other than the reinvestment of earnings,
will grow to $46,610 over 20 years if the compound annual rate of return is 8%.
If the rate of return is 10%, however, that same initial investment of $10,000 will
increase to $67,275 or 44% more.
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