Save Invest Repeat

The formula for building wealth hasn’t changed over the past century. Some are fortunate and win lotteries or inherit fortunes, but those represent an anomaly. Most people save for retirement via the normal methods: Save money, invest in various products, let investments compound over time, and wait.

Compounding investments and time are a retirees or any investor’s best friend. Time gives investors the opportunity to contribute on a regular basis, diversify a portfolio, and let investments slowly cook.

A wise investor is patient, contributes regularly, and waits for results. Too many investors become impatient with investment choices and expect immediate and outstanding returns. Investing is a marathon, not a sprint. Long-term investors wait for 5, 10, 20 or more years to make a fortune or compile a retirement. Anything less than 3 to 5 years is short-term and does not allow for either market cycles or for money managers to complete an investment strategy.

The Oracle of Omaha, Warren Buffett, perhaps the greatest investor of all time, made his first billion dollars at age 50. As of 2015, Mr. Buffett was worth over 63 billion dollars in his late 80s. Long-term investing paid off, big time. Of course, Mr. Buffett through his company, Berkshire Hathaway, owns numerous companies as well.

To see an example of the power of time and compounding investments, look at this simple chart:

Date Contribution Interest Balance

2016 $0.00 $1,000.00

2017 $1,200.00 $176.00 $2,376.00

2018 $1,200.00 $286.08 $3,862.08

2019 $1,200.00 $404.97 $5,467.05

2020 $1,200.00 $533.36 $7,200.41

2021 $1,200.00 $672.03 $9,072.44

2022 $1,200.00 $821.80 $11,094.24

2023 $1,200.00 $983.54 $13,277.78

2024 $1,200.00 $1,158.22 $15,636.00

2025 $1,200.00 $1,346.88 $18,182.88

2026 $1,200.00 $1,550.63 $20,933.51

2027 $1,200.00 $1,770.68 $23,904.19

2028 $1,200.00 $2,008.34 $27,112.53

2029 $1,200.00 $2,265.00 $30,577.53

2030 $1,200.00 $2,542.20 $34,319.73

2031 $1,200.00 $2,841.58 $38,361.31

2032 $1,200.00 $3,164.90 $42,726.21

2033 $1,200.00 $3,514.10 $47,440.31

2034 $1,200.00 $3,891.22 $52,531.53

2035 $1,200.00 $4,298.52 $58,030.05

2036 $1,200.00 $4,738.40 $63,968.45

Source: Investment Calculator

In the above example, an investor starts with $1000, contributes $100 a month ($1200 a year), and receives an 8% return on funds invested over 20 years.

The initial amount was $1000, the contributions were $24,000 (20 x $1200) for a total of $25,000

Thanks to compounding interest (8%) and time (20 years), the total is worth just short of $64,000. Not bad and certainly helpful in later years.

If this same time frame and contribution were extended to 40 years (closer to a work lifetime), the total: 357,461.69

That is an astonishing amount for only $100 a month over 40 years. That is the power of compounding and time.

Run your own simulations with Dave Ramsey’s investment calculator: Investment Calculator

In future posts, this blog will examine various investment strategies that can help the retiree and eventual retiree.

 

This post was originally written for my Quora blog: incomestream.quora.cominterest photo