The Power Of Time
There are three main ingredients in investing:
time: how long you invest
return: what rate of return you get
contribution: the money you contribute
From the most simplistic point of view, we have the classic formula of compounding interest (future value):
\[ FV = P \times (1 + r)^n \]
- \(n\): number of years
- \(r\): annual rate of return
- \(P\): principal amount
- \(FV\): future value
The Power of Starting Young
Savings per Month to be a millionaire at 65
Assumptions:
- 10% return in 20s
- 9% return in 30s
- 8% return in 40s
- 7% return in 50s
- 6% return after 60s
Start Early and Save Often
Savings per Month to be a millionaire at 65
Assumed rate of return is 10% at age 20, decreasing 0.1% each year, reaching a terminal return of 5.5% at age 65.
The Power of Time
What investing $500/month over different lengths of time turns into.
Wealth Multiplier
Expected lifetime return for ages 0 to 20 is 10% per year, decreasing by 0.1% each year after 20, reaching a 5.5% terminal return at 65.