|
Starting Time of Investment & POC
How does time affect POC? Starting Early vs. Starting
Late
Table 6
Table 6 shows the difference in the end values of an investment based on the starting times. Person
A invests $2,000/year for 10 years, starting at Age 0 and ending at Age 10. From Age 10 to Age 65, the money is left to grow
on its own. Person B invests $2,000/year for 55 years, starting at Age 10 and ending at Age 65. In both examples, the interest
rate is 10%, compounded monthly.
|
|
Person A |
|
Person B |
|
|
Age |
Annual Investment
in $ |
Year-End Values
in $
10% Compounded Monthly |
Annual Investment
in $ |
Year End Values
in $
10% Compounded Monthly |
|
0 |
2,000 |
2,209.43 |
0 |
0 |
|
1 |
2,000 |
4,440.79 |
0 |
0 |
|
2 |
2,000 |
6,905.80 |
0 |
0 |
|
3 |
2,000 |
9,628.93 |
0 |
0 |
|
4 |
2,000 |
12,637.20 |
0 |
0 |
|
5 |
2,000 |
15,960.48 |
0 |
0 |
|
6 |
2,000 |
19,631.75 |
0 |
0 |
|
7 |
2,000 |
23,687.45 |
0 |
0 |
|
8 |
2,000 |
28,167.84 |
0 |
0 |
|
9 |
2,000 |
33,117.38 |
0 |
0 |
|
10 |
0 |
36,585.20 |
2,000 |
2,209.43 |
|
11 |
0 |
40,416.15 |
2,000 |
4,440.79 |
|
12 |
0 |
44,648.25 |
2,000 |
6,905.80 |
|
13 |
0 |
49,323.51 |
2,000 |
9,628.93 |
|
14 |
0 |
54,488.33 |
2,000 |
12,637.20 |
|
15 |
0 |
60,193.97 |
2,000 |
15,960.48 |
|
16 |
0 |
66,497.07 |
2,000 |
19,631.75 |
|
17 |
0 |
73,460.18 |
2,000 |
23,687.45 |
|
18 |
0 |
81,152.42 |
2,000 |
28,167.84 |
|
19 |
0 |
89,650.14* |
2,000** |
33,117.38*** |
*Reinvestment
of investment earnings can make a big difference in investment results over time. Reinvested earnings may generate more earnings
and those earnings, in turn, can generate even more earnings.
**Although Person A
has not made any contributions in 10 years, Person B will never be able to catch up because Person A was earning compound
interest monthly for 10 years before Person B started investing. At the end of Year 19, Person A has earned $___________ in
compound interest on his/her investment, which is $______ more than Person B’s $2,000 yearly contribution, plus $__________
compound interest.
***The significant difference in the year-end values of the two investments at Year 19 clearly indicate
that the sooner a person begins to save, the less money he/she may need to put away over time in order to reach his/her investment
goals.
|
20 |
0 |
99,037.68 |
2,000 |
38,585.20 |
|
21 |
0 |
109,408.22 |
2,000 |
44,625.57 |
|
22 |
0 |
120,864.69 |
2,000 |
51,298.45 |
|
23 |
0 |
133,520.80 |
2,000 |
58,670.07 |
|
24 |
0 |
147,502.17 |
2,000 |
66,813.59 |
|
25 |
0 |
162,947.57 |
2,000 |
75,809.85 |
|
26 |
0 |
180,010.31 |
2,000 |
85,748.13 |
|
27 |
0 |
198,859.74 |
2,000 |
96,727.08 |
|
28 |
0 |
219,682.95 |
2,000 |
108,855.67 |
|
29 |
0 |
242,686.63 |
2,000 |
122,254.28 |
|
30 |
0 |
268,099.09 |
2,000 |
137,055.90 |
|
31 |
0 |
296,172.57 |
2,000 |
153,407.44 |
|
32 |
0 |
327,185.71 |
2,000 |
171,471.20 |
|
33 |
0 |
361,446.33 |
2,000 |
191,426.48 |
|
34 |
0 |
399,294.48 |
2,000 |
213,471.33 |
|
35 |
0 |
441,105.83 |
2,000 |
237,824.57 |
|
36 |
0 |
487,295.37 |
2,000 |
264,727.91 |
|
37 |
0 |
538,321.56 |
2,000 |
294,448.38 |
|
38 |
0 |
594,690.86 |
2,000 |
327,280.97 |
|
39 |
0 |
656,962.76 |
2,000 |
363,551.56 |
|
40 |
0 |
725,755.35 |
2,000 |
403,620.16 |
|
41 |
0 |
801,751.42 |
2,000 |
447,884.47 |
|
42 |
0 |
885,705.27 |
2,000 |
496,783.83 |
|
43 |
0 |
978,450.19 |
2,000 |
550,803.59 |
|
44 |
0 |
1,080,906.71 |
2,000 |
610,479.92 |
|
45 |
0 |
1,194,091.77 |
2,000 |
676,405.15 |
|
46 |
0 |
1,319,128.78 |
2,000 |
749,233.61 |
|
47 |
0 |
1,457,258.80 |
2,000 |
829,688.16 |
|
48 |
0 |
1,609,852.84 |
2,000 |
918,567.35 |
|
49 |
0 |
1,778,425.47 |
2,000 |
1,016,753.35 |
|
50 |
0 |
1,964,649.86 |
2,000 |
1,125,220.71 |
|
51 |
0 |
2,170,374.37 |
2,000 |
1,245,046.02 |
|
52 |
0 |
2,397,640.93 |
2,000 |
1,377,418.61 |
|
53 |
0 |
2,648,705.27 |
2,000 |
1,523,652.34 |
|
54 |
0 |
2,926,059.32 |
2,000 |
1,685,198.65 |
|
55 |
0 |
3,232,455.97 |
2,000 |
1,863,660.97 |
|
56 |
0 |
3,570,936.35 |
2,000 |
2,060,810.63 |
|
57 |
0 |
3,944,860.05 |
2,000 |
2,278,604.43 |
|
58 |
0 |
4,357,938.45 |
2,000 |
2,519,204.09 |
|
59 |
0 |
4,814,271.55 |
2,000 |
2,784,997.68 |
|
60 |
0 |
5,318,388.69 |
2,000 |
3,078,623.33 |
|
61 |
0 |
5,875,293.48 |
2,000 |
3,402,995.42 |
|
62 |
0 |
6,490,513.48 |
2,000 |
3,761,333.51 |
|
63 |
0 |
7,170,155.06 |
2,000 |
4,157,194.28 |
|
64 |
0 |
7,920,963.99* |
2,000 |
4,594,506.85** |
*Person A’s total 10-year contribution of $20,000 ($2,000/year from Age 0 to the end of Age
9) is worth $7,920,963.99 at Age 65.
** In comparison, Person B’s total 55-year contribution of $110,000 ($2,000/year from the beginning
of Year 10 to the end of Year 64) is worth $4,594,506.85 at Age 65. Over the years, the difference in the two investments
grows much greater in favor of Person A.
Clearly, Person B started 10 years too late. Imagine how much greater the difference would have been
if Person A had continued to invest to Year 65, instead of stopping. The year end values in Table 6 above are perfect proof
of the power of compounding.
Table 7
Table 7 shows another example of the difference in the end values of an investment
based on the starting times. Person A invests $2,000/year for 10 years, starting at Age 25 and ending at Age 35. From Age
35 to Age 65, the money is left to grow on its own. Person B invests $2,000/year for 30 years, starting at Age 35 and ending
at Age 65. In both examples, the interest rate is 10%, compounded monthly.
|
|
Person A |
|
Person B |
|
|
Age |
Annual Investment
in $ |
Year-End Values
in $
10% Compounded Monthly |
Annual Investment
in $ |
Year End Values
in $
10% Compounded Monthly |
|
25 |
2,000 |
2,209.43 |
0 |
0 |
|
26 |
2,000 |
4,440.79 |
0 |
0 |
|
27 |
2,000 |
6,905.80 |
0 |
0 |
|
28 |
2,000 |
9,628.93 |
0 |
0 |
|
29 |
2,000 |
12,637.20 |
0 |
0 |
|
30 |
2,000 |
15,960.48 |
0 |
0 |
|
31 |
2,000 |
19,631.75 |
0 |
0 |
|
32 |
2,000 |
23,687.45 |
0 |
0 |
|
33 |
2,000 |
28,167.84 |
0 |
0 |
|
34 |
2,000 |
33,117.38 |
0 |
0 |
|
35 |
0 |
36,585.20 |
2,000 |
2,209.43 |
|
36 |
0 |
40,416.15 |
2,000 |
4,440.79 |
|
37 |
0 |
44,648.25 |
2,000 |
6,905.80 |
|
38 |
0 |
49,323.51 |
2,000 |
9,628.93 |
|
39 |
0 |
54,488.33 |
2,000 |
12,637.20 |
|
40 |
0 |
60,193.97 |
2,000 |
15,960.48 |
|
41 |
0 |
66,497.07 |
2,000 |
19,631.75 |
|
42 |
0 |
73,460.18 |
2,000 |
23,687.45 |
|
43 |
0 |
81,152.42 |
2,000 |
28,167.84 |
|
44 |
0 |
89,650.14 |
2,000 |
33,117.38 |
|
45 |
0 |
99,037.68 |
2,000 |
38,585.20 |
|
46 |
0 |
109,408.22 |
2,000 |
44,625.57 |
|
47 |
0 |
120,864.69 |
2,000 |
51,298.45 |
|
48 |
0 |
133,520.80 |
2,000 |
58,670.07 |
|
49 |
0 |
147,502.17 |
2,000 |
66,813.59 |
|
50 |
0 |
162,947.57 |
2,000 |
75,809.85 |
|
51 |
0 |
180,010.31 |
2,000 |
85,748.13 |
|
52 |
0 |
198,859.74 |
2,000 |
96,727.08 |
|
53 |
0 |
219,682.95 |
2,000 |
108,855.67 |
|
54 |
0 |
242,686.63 |
2,000 |
122,254.28 |
|
55 |
0 |
268,099.09 |
2,000 |
137,055.90 |
|
56 |
0 |
296,172.57 |
2,000 |
153,407.44 |
|
57 |
0 |
327,185.71 |
2,000 |
171,471.20 |
|
58 |
0 |
361,446.33 |
2,000 |
191,426.48 |
|
59 |
0 |
399,294.48 |
2,000 |
213,471.33 |
|
60 |
0 |
441,105.83 |
2,000 |
237,824.57 |
|
61 |
0 |
487,295.37 |
2,000 |
264,727.91 |
|
62 |
0 |
538,321.56 |
2,000 |
294,448.38 |
|
63 |
0 |
594,690.86 |
2,000 |
327,280.97 |
|
64 |
0 |
656,962.76* |
2,000 |
363,551.56** |
*Person A’s total 10-year contribution of $20,000 ($2,000/year from the beginning of Age 25
to the end of Age 34) is worth $656,962.76 at Age 65.
** In comparison, Person B’s total 30-year contribution of $60,000 ($2,000/year from the beginning
of Year 34 to the end of Year 64) is worth $363,551.56 at Age 65. As in Table 6 above, the difference in the two investments
over the years grows much greater in favor of Person A.
Again, the earlier that money is placed into an investment the more time there is for POC is work
a miracle. Time is money…and, although money does not guarantee happiness, money does provide options not otherwise
available.
Table 8
Table 8 is a recap of Tables 6 & 7 above. Recall, all totals shown below were calculated based
on an interest rate of 10%, compounded monthly.
|
Recap |
Person A
Table 6 |
Person B
Table 6 |
Person A
Table 7 |
Person B
Table 7 |
|
Year |
Yearly Deposit of $2,000 from Age 0 to Age 10 (10-Year Total of $20,000) |
Yearly Deposit of $2,000 from Age 10 to Age 65 (55-Year Total of
$110,000) |
Yearly Deposit of $2,000 from Age 25 to Age 35 (10-Year Total of
$20,000) |
Yearly Deposit of $2,000 from Age 35 to Age 65 (30-Year Total of
$60,000) |
|
0 |
2,209.43 |
0 |
0 |
0 |
|
9 |
33,117.38 |
0 |
0 |
0 |
|
10 |
36,585.20 |
2,209.43 |
0 |
0 |
|
19 |
89,650.14 |
33,117.38 |
0 |
0 |
|
24 |
147,502.17 |
66,813.59 |
0 |
0 |
|
25 |
162,947.57 |
75,809.85 |
2,209.43 |
0 |
|
29 |
242,686.63 |
122,254.28 |
12,637.20 |
0 |
|
34 |
399,294.48 |
213,471.33 |
33,117.38 |
0 |
|
35 |
441,105.83 |
237,824.57 |
36,585.20 |
2,209.43 |
|
39 |
656,962.76 |
363,551.56 |
54,488.33 |
12,637.20 |
|
49 |
1,778,425.47 |
1,016,753.35 |
147,502.17 |
66,813.59 |
|
54 |
2,926,059.32 |
1,685,198.65 |
242,686.63 |
122,254.28 |
|
59 |
4,814,271.55 |
2,784,997.68 |
399,294.48 |
213,471.33 |
|
64 |
7,920,963.99 |
4,594,506.85 |
656,962.76 |
363,551.56 |
Suggested reading: The Power of Compounding. Safer Child, Inc.
http://www.saferchild.org/power.htm
Note: Calculations for Tables 6 to 8 were computed using FundAdvise.com online calculator at About.com
http://www.saferchild.org/power.htm
http://mutualfunds.about.com/gi/dynamic/offsite.htm?zi=1/XJ&sdn=mutualfunds&cdn=money&tm=264&gps=99_1092_1020_587&f
=11&su=p649.0.147.ip_p284.5.420.ip_&tt=2&bt=1&bts=0&zu=http%3A//
www.tcalc.com/tvwww.dll%3FSave%3FCstm%3Dfundadvice%26IsAdv%3
D0%26SlvFr%3D6
Table 9
Table 9 shows the number of years necessary for a one-time investment (in $1,200 increments) to become
$1 million dollars at 10% interest, compounded at various frequencies (daily, weekly, and annually). For all three examples,
the investment is started at the beginning of the year.
|
ONE-TIME
Investment
in $
Started
at the Beginning
of the Year |
Number of Years
To Become $1 Million
at 10%
Compounded Daily |
Number of Years
To Become $1 Million
at 10%
Compounded Monthly |
Number of Years
To Become $1 Million
at 10%
Compounded Annually |
|
1,200 |
67.2635 |
67.5342 |
70.5636 |
|
2,400 |
60.3311 |
60.5739 |
63.2911 |
|
3,600 |
56.2759 |
56.5023 |
59.0369 |
|
4,800 |
53.3987 |
53.6136 |
56.0186 |
|
6,000 |
51.167 |
51.3728 |
53.6773 |
|
7,200 |
49.3435 |
49.542 |
51.7644 |
|
8,400 |
47.8018 |
47.9941 |
50.147 |
|
9,600 |
46.4663 |
46.6532 |
48.746 |
|
10,800 |
45.2883 |
45.4705 |
47.5102 |
|
12.000 |
44.2345 |
44.4125 |
46.4048 |
|
13,200 |
43.2813 |
43.4554 |
45.4048 |
|
14,400 |
42.4111 |
42.5817 |
44.4919 |
|
15,600 |
41.6105 |
41.778 |
43.652 |
|
16,800 |
40.8694 |
41.0338 |
42.8745 |
|
18,000 |
40.1793 |
40.341 |
42.1506 |
|
19,200 |
39.5339 |
39.6929 |
41.4735 |
|
20,400 |
38.9275 |
39.0842 |
40.8374 |
|
21,600 |
38.3559 |
38.5102 |
40.2377 |
|
22,800 |
37.8151 |
37.9673 |
39.6704 |
|
24,000 |
37.3021 |
37.4522 |
39.1322 |
|
25,200 |
36.8142 |
36.9623 |
38.6203 |
|
26,400 |
36.3489 |
36.4951 |
38.1322 |
|
27,600 |
35.9043 |
36.0488 |
37.6659 |
|
28,800 |
35.4787 |
35.6214 |
37.2193 |
|
30,000 |
35.0704 |
35.2115 |
36.791 |
|
40,000 |
32.1932 |
32.3227 |
33.77 |
|
50,000 |
29.9614 |
30.082 |
31.43 |
|
60,000 |
28.138 |
28.2512 |
29.519 |
|
70,000 |
26.5962 |
26.7032 |
27.90 |
|
80,000 |
25.2607 |
25.3624 |
26.50 |
|
90,000 |
24.0828 |
24.1796 |
25.26 |
|
100,000 |
23.029 |
23.1217 |
24.16 |
Calculations for Table 9 were done using 1728 Software Systems' Compound Interest Calculator. http://www.1728.com/compint.htm.
Note: The resultant years are very close to values obtained by Rule of 72.
Table 10
Table 10 shows the end values of a one-time investment
of $20,000 at 10% interest, compounded annually, in 10-year increments. For all examples, the investment is started at the
beginning of the year.
|
Amount
One-Time Investment
in $
Started at the Beginning of the Year |
Year |
Year end value
End Values
in $
10% Interest
Compounded Annually |
|
20,000 |
1 |
22,000.00 |
|
|
10 |
51,875.00 |
|
|
20 20 |
134,550.00 |
|
|
30 30 |
348,988.00 |
|
|
40 40 |
905,185.11 |
|
|
50 50 |
2,347,817.06 |
Calculations are done using 1728 Software Systems' Compound Interest Calculator. http://www.1728.com/compint.htm.
Table 11
Table 11 shows the end values of a monthly investment, ranging from $500 to $10,000, at 10% interest,
compounded monthly, for 10 years.
|
Monthly Investment
in $
for a Total of 10 Years |
End Values
in $
10% Interest
Compounded Monthly |
|
500 |
103,776.01 |
|
1,000 |
207,552.02 |
|
2,000 |
415,104.04 |
|
3,000 |
622,656.06 |
|
4,000 |
830,208.08 |
|
5,000 |
1,037,760.10 |
|
6,000 |
1,245,312.12 |
|
7,000 |
1,452,864.14 |
|
8,000 |
1,660,416.16 |
|
9,000 |
1,867,968.18 |
|
10,000 |
2,075,520.20 |
When planning for retirement, the shrewd investor will take into account the future purchasing power
of his/her money. According to Investopedia… A simple way to think about purchasing power is to imagine if you made
the same salary as your grandfather. Clearly you could survive on much less a few generations ago, however, because of inflation;
you'd need a greater salary just to maintain the same quality of living.
Investopedia. Purchasing Power: What does it mean?http://www.investopedia.com/terms/p/purchasingpower.asp
"It's been said that a dollar doesn't buy what it used to. What about 20 years from now? Money Magazine's
Walter Updegrave shows you how to shield your nest egg."
Suggested Reading: CNNMoney.com. Retirement: The inflation threat by Walter Updegrave, Money Magazine
senior editor. November 2, 2007: 4:56 PM EDT. http://money.cnn.com/2007/10/04/pf/expert/expert.moneymag/index.htm
Suggested Reading: CNNMoney.com. Retirement: The inflation threat by Walter Updegrave, Money
Magazine senior editor. November 2, 2007: 4:56 PM EDT.
http://money.cnn.com/2007/10/04/pf/expert/expert.moneymag/index.htm
Table 12
Table 12 shows the percent of pre-tax salary an individual would need to invest annually in a Retirement
Fund if he/she wants to retire on 80 percent of his/her last year's salary before retiring at Age 65.
|
Starting Age
of Investor |
Starting with 6 Months’ Salary Saved* |
% of Pre-Tax Salary**
Needed to Invest Annually
in a Retirement Fund
to Retire on 80% of Last Year’s Salary
Before Retiring at Age 65 |
|
25 |
6 months |
3 % of pre-tax salary |
|
45 |
6 months |
18 % of pre-tax salary |
|
50 |
6 months |
28 % of pre-tax salary |
|
55 |
6 months |
50 % of pre-tax salary |
* Example of 6 Months’ Salary Saved: If a person earns $60,000/year, the % of pre-tax salary
that he/she would have saved in 6 months is $30,000 ($60,000 divided by 12 months = $5,000/month earnings x 6 months = $30,000
savings).
** Examples of % of Pre-Tax Salary an individual would need to save annually, starting with 6 months’
salary saved:
3% of Pre-Tax Salary annually at Age 25: $60,000/year salary = $1,800 ($60,000 x .03 = $1,800)
18% of Pre-Tax Salary annually at Age 45: $60,000/year salary = $10,800 ($60,000 x .18 = $10,800)
28% of Pre-Tax Salary annually at Age 50: $60,000/year salary = $16,800 ($60,000 x .28 + $16,800)
50% of Pre-Tax Salary annually at Age 55: $60,000/year salary = $30,000 ($60,000 x .50 = $30,000)
In the words of Ben Stein…
If you start at 25 with six months' salary saved, you need only save 3 percent of your total, pre-tax
salary per year to get the nest egg you need (roughly 15 times earnings at retirement) by age 65. But if you start at age
45, you need to save 18 percent of your salary (again, assuming you start with six months' of salary saved). If you start
at age 50, you need to save 28 percent of your salary. And if you start at age 55, you need to save nearly 50 percent of your
gross salary to get where you need to be.
Source:
How to Retire Rich: Use the Power of Compounding.
Ben Stein. October 10, 2005. http://www.freemoneyfinance.com/2005/10/how_to_retire_r.html
In her article "What You Don’t Know Can Hurt You Financially," author and journalist Laura
Rowley states, "Financial literacy matters because it influences decision-making, and there is a very strong link between
financial literacy and your debt behavior, wealth accumulation, and retirement planning." Rowley cites Charles J. Farrell’s
(a financial planner with Colorado’s Northstar Investment Advisors, LLC) suggestion for how an individual may keep his/her
options open in retirement.
Farrell proposes that a person put a number on his/her ultimate financial goal for retirement. By
age 65, Farrell suggests: "…have 12 times your then-current pay stashed away." For example, if a person earns $100,000
in his/her last year of work, he/she would need to have $1.2 million dollars in savings ($100,000 x 12 = $1.2 million). The
person would then have $60,000/year to spend during retirement, if he/she withdraws 5 percent per year ($1.2 million x .05
= $60,000).
According to a study by Hewitt Associates, a human resources consulting firm:
Women live an average of 22 years after retirement versus 19 years for men, and medical costs are
rising, so women will need to save 2 percent more than men every year over 30 years to maintain their standard of living upon
retirement…[Women] start saving later (by two to four years), invest less (7.3 percent versus 8.1 percent) and are in
and out of the work force more often for family reasons - gaps that can result in hundreds of thousands of dollars in missed
earnings, raises and benefits…If a woman who earns $57,000 a year boosts her contribution from 2 percent to 4 percent
- an extra $95 a month - she can save an extra $81,000 by the time she retires…That doesn't include her employer's matching
contribution.
Source: Women live longer but aren’t saving enough for it. July 18, 2008. baltimoresun.com
http://www.baltimoresun.com/business/investing/bal-bz.women10jul10,0,7727807.story
Table 13
Table 13 shows the age an individual would need to start investing and the corresponding percent
of his/her annual pre-tax income that would need to be saved to reach a specific financial goal for retirement.
|
Starting Age of Investor
in Years |
Annual Pre-Tax Income Saved
in % |
|
20 |
5 |
|
30 |
10 |
|
40 |
15 |
|
50 |
20 |
Farrell further suggests, "If the recommended percentage is beyond your budget, start saving 1 percent
today, and add a percent each year – 2 percent in year two, 3 percent in year three, and so on, until you reach your
goal."
Source: YAHOO! FINANCE. What You Don’t Know Can Hurt You Financially by Laura Rowley.
Posted on Wednesday, March 5, 2008, 12:00 AM. http://finance.yahoo.com/expert/article/moneyhappy/70114
Table 14
Table 14 shows the monthly investment necessary to accumulate $1 million dollars by Age 65, starting
at various ages. In all examples, the amount of prior savings is indicated, and a comparison is made between interest rates
of 10% and 8%, compounded monthly.
|
Age |
Prior Savings
in $ |
Amount Needed*
to Invest Monthly
to Accumulate $1 Million
by Age 65
at 10% Interest
Compounded Monthly |
Amount Needed*
to Invest Monthly
to Accumulate $1 Million
by Age 65
at 8% Interest
Compounded Monthly |
|
0 |
0 |
19.10 |
52.00 |
|
10 |
0 |
31.50 |
77.25 |
|
25 |
0 |
141.75 |
262.00 |
|
35 |
0 |
395.00 |
611.00 |
|
35 |
50,000 |
0 |
251.00 |
|
45 |
0 |
1,164.00 |
1,525.25 |
|
45 |
50,000 |
700.00 |
1,128.00 |
|
45 |
100,000 |
224.00 |
718.00 |
|
55 |
0 |
4,150.00 |
4,700.00 |
|
55 |
50,000 |
3,575.00 |
4,200.00 |
|
55 |
100,000 |
2,935.00 |
3,625.00 |
|
55 |
200,000 |
1,685.00 |
2,475.00 |
*Approximate values
Source: YAHOO! FINANCE. How to Make a Million by Mary Beth Franklin. Tuesday, January 22,
2008. Provided by Kiplinger.com. http://finance.yahoo.com/focus-retirement/article/104258/How-to-Make-a-Million?mod=retirement-preparation
The difference between starting early and starting late when investing makes a huge difference in
the outcome of the investment as shown in Tables 6 through 14 above. Time is the most important and indispensable factor for
wealth creation. A person needs to start investing early (i.e., at Age 0) to allow enough time for POC to build wealth. If
a person starts later in life, the need to invest larger amounts would be necessary to make up for lost time. A higher rate
of return would also help to increase earnings.
In addition to having the knowledge that starting early is the best option for building wealth, an
individual may also derive some benefit from knowing the "relative value" of an amount of money in one year compared to another.
Six ways to compute the relative value of a U. S. dollar amount from 1774 to present can be found at measuringworth.com. An
example of other information that is available on the Website is presented below:
How much would your saving grow in the past, depending on what it is invested in?
One's saving accumulates over time at different rates depending on where it is invested. Saving accounts
at banks are very safe; however, they pay a low rate of return compared to the stock market. Bonds can pay more, but sometimes
require investors to keep their money tied up for extended periods. Stocks are usually the most risky and for many periods
have given their owners high returns; however, they can go through long periods of no appreciation, such as from 1965 to 1982
in the United States. The saving calculator can tell you how your savings would have grown in the past depending on
which type of asset you chose.
Source: MEASURINGWORTH. Purchasing Power of Money in the United States from 1774 to 2007. http://www.measuringworth.com/ppowerus/result.php
The MeasuringWorth calculators allow the user to calculate how much money a person would need
in the year 2007 to have the same purchasing power of one dollar in the year 1774 and 1952, respectively, as shown below:
"$26.51 in the year 2007 has the same purchase power as $1 in the year 1774."
"$7.81 in the year 2007 has the same purchase power as $1 in the year 1952."
Source: http://www.measuringworth.com/ppowerus/
To summarize:
Since 1774, one dollar has lost about 20% of it’s value in 100 years, 89% of its value in 200 years, 97% of it’s
value in 234 years, and about 90% of its value in last 50 years (between 1952 to 2007).
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