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Albert Einstein once said, "Compounding is the most powerful force in the universe." I don't know about that, but it certainly can be a powerful financial force.
Compounding means that invested money (capital) earns a return. The return adds to you total capital, and future return is on the total; and so it goes and grows over time. Now, it doesn't take a rocket scientist to see that the longer the money stays invested, the more rapidly it grows.
For this exercise, select an amount to invest every month and select the number of years until you'll need the money; say, at your retirement, and enter the numbers in the appropriate boxes. The program will do a "future value" calculation using the long term average stock market annual return of 10%
How much money will you have at retirement to based on your current monthly investments?
The amount of money you will have at retirement to based on your current monthly investments will be displayed here when the above form is completed.
- This example does not take taxes into account.
- Also, there is no guarantee that the American stock markets will produce a 10% average return in the future, but it has done so for over 100 years.
- Obviously, the 10% rate is an average only; meaning that there are years when the market is down, and also years when it returns significantly more than 10%.