Bankrate, one of my favorites, posted a great allegorical tale about Early Shirley and Late Nate to illustrate the power of compound interest. Please read the story, learn the lesson, and act on it!
Consider the tale of Shirley and Nate.
Shirley's not particularly organized or ambitious, but she had the advantage of attending a seminar while still at college where she learned about the magic of compound interest.
So at age 25, after graduating from college and landing a job, she opened a Roth IRA and began contributing $4,000 a year to it. She chose a moderately aggressive balanced fund within her IRA that invested mostly in stocks, with limited exposure to bonds. It produced annual returns of 9 percent on average.
Shirley did this even though she owed money on college loans. She continued to invest until she turned 35, at which time the account was valued at $60,772. Then she stopped and invested nothing more, but continued to earn 9 percent annually in the account. At age 35, her life intersected with Nate's.
Nate was quite ambitious and owned all the latest technological gadgets. But he had put off investing because, well, he was about driving cool cars and impressing women and he just didn't want to think about retirement. Retirement was for old people. He finally started investing $4,000 annually at age 35 because Shirley put him up to it. In fact, that marked their first fight, among many.
Nate invested this amount for 20 straight years in a mix of funds that also returned 9 percent annually on average. When he turned 55, his account was worth $204,640 -- less than Shirley's account value, which by then had grown to $340,591. Nate's total outlay of $80,000 was twice that of Shirley's. And oh, by the way, the two had split up eons ago, after only investing six months in the relationship.
You can read the rest of the worthwhile article here.
0 Comments:
Post a Comment