Compounding: The Secret to Wealth Accumulation

Vote early and vote often is a tongue-in-cheek phrase used in relation to elections and the voting process, often with reference to Chicago and Cook County.

Save early and save often is the key to wealth creation through the miracle of compound interest.

Saving early is critical.  A dollar saved and invested at 10% when you are 20, increases to $117 by age 70.  By contrast, a dollar saved at age 50 is only worth $6.70 at age 70.  (We are using a 10% rate of return in our examples as the 1926-2013 average return for the S&P 500 has been 10.1%)

Saving often is even more important.  A dollar saved each year and invested at 10% beginning when you are 20, increases to $1,164 by age 70.  If you don’t get started until age 50, but still save one dollar each year, by age 70 you will have accumulated $57.

Save early, save often!

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®