Richard Russell in his most famous article on compounding explains how important it is for us to start early and be patient which can beat even the most diligent if they are a little late. The results from the below study will blow you off and you would start to calculate yourself if it is true. I have done it few times when I initially read the article
Study: In this study we assume that investor (B) opens an IRA at age 19. For seven consecutive periods he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions -- he's finished.
A second investor (A) makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he's 65 (at the same theoretical 10% rate). The end result for both the investors is as follows
At the age of 65 investor (A)'s networth is - $893,704 which is 11 times his investment amount $80,000 while investor (B)'s networth is - $930,641 which is 66 times his investment amount $14,000
Investor (B) although does only invest for 7 years beats investor (A) who had invested $2000 every year for 40 years diligently but only was 7 years late. So investing early and being patient are very important traits when you want to secure your financial future.
Read the full article by Richard Russell here http://ww2.dowtheoryletters.com/ -> Rich Man Poor Man the power of compounding.
Study: In this study we assume that investor (B) opens an IRA at age 19. For seven consecutive periods he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions -- he's finished.
A second investor (A) makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he's 65 (at the same theoretical 10% rate). The end result for both the investors is as follows
At the age of 65 investor (A)'s networth is - $893,704 which is 11 times his investment amount $80,000 while investor (B)'s networth is - $930,641 which is 66 times his investment amount $14,000
Investor (B) although does only invest for 7 years beats investor (A) who had invested $2000 every year for 40 years diligently but only was 7 years late. So investing early and being patient are very important traits when you want to secure your financial future.
Read the full article by Richard Russell here http://ww2.dowtheoryletters.com/ -> Rich Man Poor Man the power of compounding.
