Small Trades Journal

The breakeven point at 22 years is a milestone to show when the young investor’s retirement savings surpass the projected total payment of $51.  At this milestone the ‘investor’ will have $53 and the ‘hoarder’ will have only $23.  The ‘hoarder’ must wait 50 years to accumulate $51 and can never match the investor’s savings of $464 reached through the magic of compounded returns.

There is no guarantee that investing $1 per year will generate $464 after 50 years, but history tells us the chances are pretty good.  We are assuming that the market generates dividends and capital gains at the average annual rate of 7%.  The dividends and capital gains are called returns.  Faithful reinvestment of these returns will multiply the accumulated value of our imaginary investment by 7% per year.  If $51 generates $464 after 50 years, the compounded returns are $464-$51, or $413.  Learn about becoming a young investor by reading Hey Kids.

This entry was posted on Saturday, March 2nd, 2013 at 10:31 am and is filed under do-it-yourself investing, Personal finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.