The
Power of Compounding
Consider two investors, one invests
$2000 per year starting now and continues for eight years. The other investor
waits eight years and invests $2000 for the next 39years. Assuming a return
of 10% and tax deferral, which investor will come out ahead at retirement?
| Age
|
Investor
A's
Investment |
Year
End Value |
Investor B's
Investment
|
Year
End Value |
| 19
|
$2000
|
$2200
|
|
|
| 20
|
$2000
|
$4620
|
|
|
| 21
|
$2000
|
$7282
|
|
|
| 22
|
$2000
|
$10,210
|
|
|
| 23
|
$2000
|
$13,431
|
|
|
| 24
|
$2000
|
$16,974
|
|
|
| 25
|
$2000
|
$20,872
|
|
|
| 26
|
$2000
|
$25,159
|
|
|
| 27
|
|
$27,675
|
$2000
|
$2200
|
| 28
|
|
$30,442
|
$2000
|
$4620
|
| 29
|
|
$33,487
|
$2000
|
$7282
|
| 30
|
|
$36,835
|
$2000
|
$10,210
|
| 31
|
|
$40,519
|
$2000
|
$13,431
|
| 32
|
|
$44,571
|
$2000
|
$16,974
|
| 33
|
|
$49,028
|
$2000
|
$20,872
|
| 34
|
|
$53,930
|
$2000
|
$25,159
|
| 35
|
|
$59,323
|
$2000
|
$29,875
|
| 36
|
|
$65,256
|
$2000
|
$36,062
|
| 37
|
|
$71,781
|
$2000
|
$40,769
|
| 38
|
|
$78,960
|
$2000
|
$47,045
|
| 39
|
|
$86,856
|
$2000
|
$53,960
|
| 40
|
|
$95,541
|
$2000
|
$61,545
|
| 41
|
|
$105,095
|
$2000
|
$69,899
|
| 42
|
|
$115,605
|
$2000
|
$79,089
|
| 43
|
|
$127,165
|
$2000
|
$89,198
|
| 44
|
|
$139,882
|
$2000
|
$100,318
|
| 45
|
|
$153,870
|
$2000
|
$112,550
|
| 46
|
|
$169,257
|
$2000
|
$126,005
|
| 47
|
|
$186,183
|
$2000
|
$140,805
|
| 48
|
|
$204,801
|
$2000
|
$157,066
|
| 49
|
|
$225,281
|
$2000
|
$174,995
|
| 50
|
|
$247,809
|
$2000
|
$194,694
|
| 51
|
|
$272,590
|
$2000
|
$216,364
|
| 52
|
|
$299,949
|
$2000
|
$240.200
|
| 53
|
|
$329,834
|
$2000
|
$266,420
|
| 54
|
|
$362,817
|
$2000
|
$295,262
|
| 55
|
|
$399,099
|
$2000
|
$326,988
|
| 56
|
|
$439,009
|
$2000
|
$361,887
|
| 57
|
|
$482,910
|
$2000
|
$400,276
|
| 58
|
|
$531,201
|
$2000
|
$442,503
|
| 59
|
|
$584,321
|
$2000
|
$488,953
|
| 60
|
|
$642,753
|
$2000
|
$540.049
|
| 61
|
|
$707,028
|
$2000
|
$596,254
|
| 62
|
|
$777,731
|
$2000
|
$658,079
|
| 63
|
|
$855,504
|
$2000
|
$726,087
|
| 64
|
|
$941,054
|
$2000
|
$800,896
|
| 65
|
|
$1,035,160
|
$2000
|
$883,185
|
| |
|
|
|
|
| |
Total
Invested |
$16,000
|
|
$78,000
|
| |
Net
Earnings |
$1,019,160
|
|
$805,185
|
This is a hypothetical illustration
and is not indicative of any particular investment.
|
