Can

http://powerofcompounding.tripod.com/poc.

Tables 69 -72

 

CAN POC  FAIL?

None can give any gaurrantee to any investment. One can be guided great deal by previous experiences. One can not control terrorism, war, inflation, poor management in company and political level and many other factors.

All these deleterious factors usually becomes  less important,

a) if one has long term investment horizon,

b) invested in well diversified blue chip high dividend paying stocks,

c) all dividends are reinvested to purchase more similar stocks and

d) further investment of  more principal even small amount  of money employing  dollar cost averaging or similar methods.

e) One need to employ simple stock option strategies

i) to protect from downside slide of stock market e.g. buying put, like insurance policy,

ii) generating extra cash by selling covered call and

iii) buying stock at a lower price than the market price e.g. selling put.

There are many more option strategies. All option strategies have drawbacks. One can minimise the drawbacks and maximise the benefits. Net result is benefit.

These are my personal opnion and may not be applicable to other investors.

POC should not fail when applied as discussed above. The accumulation of wealth may be delayed if the rate of return is very low and/or the investment is small. Tables 69 to 72 show how the amount of the investment and the interest rate will affect the end values of the investment over a period of one hundred years.

Table 69 shows the value of an investment of $1.00 per week at four different interest rates (3%, 4%, 5%, 6%), compounded monthly. For each example, the starting balance is zero and the length of time is calculated in 5-year increments from 1 to 100 years.

Table 69

Year

End Value

in $

of $1.00/week

Investment

at 3%

Compounded Monthly

End Value

in $

of $1.00/week

Investment

at 4%

Compounded Monthly

End Value

in $

of $1.00/week

Investment

at 5%

Compounded Monthly

End Value

in $

of $1.00/week

Investment

at 6%

Compounded Monthly

1

52.77

53.03

53.30

53.56

5

281.59

288.92

296.51

304.36

10

608.92

642.06

677.56

715.60

15

989.43

1,073.68

1,167.24

1,271.27

20

1,431.75

1,601.22

1,796.54

2,022.07

25

1,943.81

2,243.29

2,601.75

3,032.05

30

2,541.18

3,030.78

3,640.03

4,401.21

35

3,235.59

3,993.29

4,974.34

6,251.20

40

4,042.82

5,169.71

6,689.06

8,750.87

45

4,981.18

6,607.60

8,892.66

12,128.38

50

6,071.98

8,365.05

11,724.52

16,692.01

55

7,339.99

10,513.09

15,363.76

22,858.31

60

8,813.99

13,138.53

20,040.56

31,190.11

65

0,527.44

16,347.47

26,050.75

42,447.90

70

2,519.26

20,269.59

33,774.48

57,659.22

75

4,825.10

25,043.13

43,657.30

78,121.36

80

17,515.09

30,897.85

56,400.76

105,860.58

85

20,642.07

38,053.77

72,777.45

143,341.33

90

24,277.05

46,800.08

93,823.22

193,984.68

95

28,502.55

57,490.24

120,869.26

262,413.09

100

33,414.50

70,556.27

155,626.29

354,872.37

 

Table 70 shows the value of an investment of $2.00 per week at four different interest rates (3%, 4%, 5%, 6%), compounded monthly. For each example, the starting balance is zero and the length of time is calculated in 5-year increments from 1 to 100 years.

Table 70

Year

End Value

in $

of $2.00/week

Investment

at 3%

Compounded Monthly

End Value

in $

of $2.00/week

Investment

at 4%

Compounded Monthly

End Value

in $

of $2.00/week

Investment

at 5%

Compounded Monthly

End Value

in $

of $2.00/week

Investment

at 6%

Compounded Monthly

1

105.54

106.07

106.59

107.12

5

563.17

577.85

593.02

608.72

10

1,217.84

1,284.12

1,355.11

1,431.20

15

1,978.86

2,147.35

2,334.48

2,542.53

20

2,863.51

3,202.45

3,593.08

4,044.14

25

3,887.63

4,486.58

5,203.50

6,064.10

30

5,082.36

6,061.56

7,280.07

8,802.42

35

6,471.19

7,986.58

9,948.68

12,502.39

40

8,085.64

10,339.43

13,378.12

17,501.73

45

9,962.36

13,215.19

17,785.32

24,256.76

50

12,143.96

16,730.09

23,449.03

33,384.02

55

14,679.97

21,026.17

30,727.50

45,716.62

60

17,627.97

26,277.05

40,081.11

62,380.23

65

21,054.89

32,694.92

52,101.48

84,895.80

70

25,038.52

40,539.16

67,548.93

115,318.44

75

29,650.20

50,086.24

87,314.57

156,242.71

80

35,030.17

61,795.67

112,801.47

211,721.16

85

41,284.15

76,107.49

145,554.83

286,682.67

90

48,554.11

93,600.10

187,646.36

387,969.36

95

57,005.10

114,980.41

241,738.43

524,826.18

100

66,829.00

141,112.46

311,252.45

709,744.74

Table 71 shows the value of an investment of $20.00 per week at four different interest rates (3%, 4%, 5%, 6%), compounded monthly. For each example, the starting balance is zero and the length of time is calculated in 5-year increments from 1 to 100 years.

Table 71

Year

End Value

in $

of $20.00/week

Investment

at 3%

Compounded Monthly

End Value

in $

of $20.00/week

Investment

at 4%

Compounded Monthly

End Value

in $

of $20.00/week

Investment

at 5%

Compounded Monthly

End Value

in $

of $20.00/week

Investment

at 6%

Compounded Monthly

1

1,055.45

1,060.66

1,065.91

1,071.20

5

5,631.75

5,778.46

5,930.20

6,087.17

10

12,178.40

12,841.17

13,551.13

14,312.04

15

19,788.58

21,473.55

23,344.83

25,425.34

20

28,635.06

32,024.47

35,930.77

40,441.45

25

38,876.27

44,865.79

52,035.01

60,640.98

30

50,823.63

60,615.60

72,800.68

88,024.20

35

64,711.89

79,865.77

99,486.77

125,023.94

40

80,856.36

103,394.26

133,781.21

175,017.34

45

99,623.57

132,151.92

177,853.19

242,567.56

50

121,439.59

167,300.91

234,490.35

333,840.24

55

146,799.72

210,261.71

307,275.08

457,166.30

60

176,279.70

262,770.48

400,811.15

623,802.34

65

210,548.83

326,949.24

521,014.89

848,958.05

70

250,385.14

405,391.62

675,489.39

1,153,184.54

75

296,501.95

500,862.40

873,145.90

1,562,427.30

80

350,301.70

617,956.69

1,128,014.95

2,117,211.81

85

412,841.45

761,074.98

1,455,548.63

2,866,827.00

90

485,541.05

936,001.08

1,876,464.02

3,879,694.03

95

570,051.00

1,149,804.20

2,417,384.78

5,248,262.38

100

668,289.96

1,411,124.72

3,112,525.13

7,097,448.18

 

Table 72 shows the value of an investment of $50.00 per week at four different interest rates (3%, 4%, 5%, 6%), compounded monthly. For each example, the starting balance is zero and the length of time is calculated in 5-year increments from 1 to 100 years.

Table 72

Year

End Value

in $

of $50.00/week

Investment

at 3%

Compounded Monthly

End Value

in $

of $50.00/week

Investment

at 4%

Compounded Monthly

End Value

in $

of $50.00/week

Investment

at 5%

Compounded Monthly

End Value

in $

of $50.00/week

Investment

at 6%

Compounded Monthly

1

2,638.62

2,651.66

2,664.78

2,677.99

5

14,079.37

14,446.14

14,825.50

15,217.91

10

30,445.99

32,102.91

33,877.82

35,780.10

15

49,471.44

53,683.87

58,362.08

63,563.36

20

71,587.65

80,061.16

89,826.94

101,103.62

25

97,190.67

112,164.48

130,087.52

151,602.45

30

127,059.07

151,538.99

182,001.71

220,060.51

35

161,779.73

199,664.42

248,716.92

312,559.85

40

202,140.90

258,485.65

334,453.03

437,543.36

45

249,058.92

330,379.79

444,632.99

606,418.90

50

303,598.97

418,252.29

586,225.87

834,600.61

55

366,999.28

525,654.30

768,187.69

1,142,915.77

60

440,699.24

656,926.23

1,002,027.87

1,559,505.86

65

526,372.08

817,373.13

1,302,537.21

2,122,395.15

70

625,962.83

1,013,479.07

1,688,723.47

2,882,961.39

75

741,254.87

1,252,156.04

2,182,864.72

3,906,068.29

80

875,754.25

1,544,891.77

2,820,037.36

5,293,029.58

85

1,032,103.62

1,902,687.51

3,638,871.55

7,167,067.58

90

1,213,852.60

2,340,002.77

4,691,160.01

9,699,235.19

95

1,425,127.49

2,874,510.60

6,043,461.90

13,120,656.11

100

1,670,724.88

3,527,811.91

7,781,312.75

17,743,620.65

 

 

CONCLUSION

Compounding is a simple mathematical formula wherein investment earnings, such as dividends or interest, are reinvested. The reinvested portions along with original investment keep generating more dividend or interest. The end value of an investment is affected by a number of factors. Time is the most important factor—the sooner the investment is started the better. The beginning balance, the frequency of deposits, the number of years, and the interest rate, along with when the deposit is made (e.g., on the first of the month or at the end of the year), are other factors that affect the end value of an investment.

If enough time is given and the yearly earnings are always reinvested, the original investment will grow exponentially. The process is slow initially, but will accelerate as time goes by. Generally, the amount invested is small in the beginning. As the amount gets larger, the return on investment will also gets larger and parger year after year.

When a small amount of money doubles, the amount is still small; but, when a large amount of money doubles, the amount can be astronomical.

For example, a $10.00 annual investment at 10%, compounded monthly, will double to $20.00 in 7.2 years (Rule of 72) and to $40.00 in 14.4 years.

In contrast, a $1 million dollar investment will become $2 million dollars and $4 million dollars, respectively, during the same periods.

Still, even very small investments made over long periods of time can grow to enormous amounts.

For instance, a weekly investment of $50.00 at 5% and 10% interest, compounded monthly, will grow to $586,839.55 and $3,888,752.16, respectively, in 50 years.

A difference in the rate of return as little as 1% will make a huge difference in the total of the investment over time.

Below is an excerpt from an article by Chuck Saletta entitled “Your First Million Is the Toughest” (Friday, August 24, 2007, provided by The Motley Fool.Fool.com):

The old saying that the rich get richer is very true. As long as you manage your money well, it's far easier to make money if you've already got some cash socked away than it is to start from scratch. The reason is simple: compounding.

When you've already got money working on your behalf, each percentage point of return simply adds that many more dollars to your account balances. After all, if a stock you own goes up in value, it's far better to own 10,000 shares than it is to own 100.

The whole article is worth reading to gain more insight into how “to go from $0 to $1 million.” http://finance.yahoo.com/banking-budgeting/article/103410/your-first-million-is-the-toughest?mod=oneclick

No one knows how long he or she will live; therefore, a person is never too old to start investing. Conversely, a person is never too young to start investing. The earlier the money is invested the more time the money has to compound. The person who waits to invest will ultimately have to invest more money and may still fall short or fail to catch up with the person who invests early.

THE ULTIMATE OBJECTIVE OF INVESTING IS TO ACCUMULATE ENOUGH WEALTH SO AS TO RETIRE AT WILL, AND IF RETIRED, TO LIVE AS COMFORTABLY AS DESIRED.

Since time is money, there is only one logical conclusion when deciding whether to invest now or to wait, and that is, the time to invest is almost always is NOW!

 

 
 
SUMMARY
 
Power of compounding (POC) is the most powerful force in the earth.
POC can be utilize to accumulate large sum of wealth.
The suggested formula is:
 
1. Initially choose S&P 500 index for investment such as SPY in the New York stock exchange as investment vehicle.
 
2. Reinvest all dividends.
 
3. Keep adding principal frequently such as dollar cost averaging.
 
4. Consider buying stock utilizing selling put option to  buy stock at a cheaper price and also get premimum. Sell covered call option to get premimum. Buy more stock with the premimums.
 
5. Trend is your friend. Utilize the 200 days average as a guide to longterm trend. Continue to buy stocks as uptrnd is developed and consider to get out of the market partially or completely as downtrend develops, alternatively, buy put option as an insurence to protect the portfolio.
 
One should also consider other parameeters of technical analysis to buy and sell stocks such as MACD, Stochastics and RSI ect. 
 

Before this question is addressed, present system of funding SS has not got a good track record considering the following facts:

From letter to its members by Robin Talbert President, AARP Foundation

AARP Foundation (giving@aarp.org) 11 December 2008

“Today a growing number of seniors find themselves needing a helping hand and quite likely you know someone like this. Consider these facts:

5 million seniors live on less than $10,000 annually

29% of Americans skipped treatments, tests or prescriptions because of costs.

25% of seniors survive on social security alone.

An estimated 5 million regularly sacrifice food to pay bills.”