Once in a while, it’s nice to have a little reminder about the magic of compound interest.
Say your goal is to become a decamillionaire ($10,000,000) in your lifetime. How much blood, sweat, and tears will you endure to achieve that goal?
Actually, not too much.
If you put $5,000 a year into a Roth IRA starting at age 20, earned 10% a year, at the age of 75 you will have accumulated $10,343,253 tax-free.
Not too bad for just $5,000 a year in just one investment account (Imagine if you did something similar with your 401(k).
If you’re over 20 years old and don’t plan on waiting to withdraw from your Roth IRA until 75, you’re not out of luck. While you shouldn’t plan on becoming a decamillionaire, you’re by no means headed for the poor house.
Say you started at contributing $5,000 a year to your Roth IRA at age 25. Once you turn 70 you will have accumulated $3,953,977. Again, not too bad for a small sacrifice of money.
This isn’t over simplification. This is investing. More specifically, this is compound interest.
What’s the purpose of telling you this? Well, a lot of people think they can’t accumulate wealth like this. That only lottery winners, athletes, movie stars, and CEO’s can make this much money. Even worse, that people who do accumulate this sort of wealth in their lifetime are bad people, work 100 hours a week, were lucky, and sacrifice their life in pursuit of money.
That couldn’t be farther from the truth. Anyone with the right mindset and patience can accumulate wealth over the lifetime.
This makes them smart, not a bad person.
Photo by: Enkhtuvshin