Power of compounding (IM#101)

In 1790, before Benjamin Franklin died, he left about $1000 to each cities of Boston and Philadelphia with a request of not to use it for 100 years. With 8% annual compound rate, after 200 years, in 1990, that money amounted to $6.5 millions. This is the power of compounding.

Recently, I went through a news in CNBC about retiring as a millionaire by saving each day. That news drove to crazy. If you are at 20’s and you started saving $5 each day and invested it where the amount is compounded monthly, then

Each month: $150

Time period: 40 (at age 60)

Annual compound rate: 12%

Total return in 40 years: $1,782,513.04

Most of us underestimate the power of compounding, which is very powerful. By just saving $5 per day, you can be millionaire at age 60. Isn’t it amazing?

PS: “The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.” – Michelangelo

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