When thinking about investments, it never ceases to amaze me at how effective compounding investment returns are. As they say, the proof is in the pudding, and by using a simple financial calculator, it's easy to show how beneficial saving and compounding actually is.
One of the things I often hear from young investors - Gen Y in particular - is that they feel that investing for retirement is something that can be put off since it's so far away. I don't like this line of thinking at all because it's self defeating: we save and invest not to retire at an old age, but to have enough of a nest egg built up to retire whenever we want!
Even worse, investors tell me that $100 saved here and there or their small $1,000 savings today won't amount to much so it's not worth investing until they start their careers. This is even worse thinking! Here's proof: If you invest $1,000 in an index fund, assuming a 7% average return and never touch it for 40 years you will wind up with $14,974 due to investment compounding. If the market gets cooking and long-term returns average 10%, you will wind up with $45,259.
Now just imagine what would happen with each additional dollar saved!
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