Growth - The Difference a Percentage Makes - Protect Your Eggs

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Growth – The Difference a Percentage Makes

Posted on Mar 9, 2015 in Blog, Investing | 0 comments

AE Interest
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Compound interest is a powerful force. Einstein said it was the 8th wonder of the world.  The average mutual fund gets an annual growth around 8%, but an improvement of just 1% can make a difference over 30 years, $3,204.93 per $1,000.00 invested.

8 vs 9
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Take a look at the growth rates below. If you could grow your money with a higher rate what would that mean for your future? How would it impact your outlook?

Annual Rate of Return 5yrs 10yrs 15yrs 20yrs 25yrs 30yrs
8% $1,469.33 $2,158.94 $3,172.20 $4,661.00 $6,848.54 $10,062.74
9% $1,538.62 $2,367.36 $3,642.47 $5,604.40 $8,623.07 $13,267.67
Difference 9% vs 8% $69.29 $208.42 $470.27 $943.40 $1,774.53 $3,204.93

 

Now, the stock market (S&P 500) has averaged 10% growth over the last 100 years.

10% $1,610.51 $2,593.75 $4,177.26 $6,727.52 $10,834.74 $17,449.44
10% vs 8% $141.18 $434.81 $1,005.06 $2,066.52 $3,986.20 $7,386.70

If you moved your money from an 8% investment to a 10% investment you would have an additional $7300 per $1000 invested after 30 years.

 

If you follow Dave Ramsey at all, he says you should get 12% growth on your investments.  It's easy to see why he recommends 12%, because after 30 years you have almost 3 times more money! Almost $20,000 more per $1000 invested.

12% $1,762.34 $3,105.85 $5,473.57 $9,646.31 $17,000.09 $29,959.97
12% vs 8% $293.01 $946.91 $2,301.37 $4,985.31 $10,151.55 $19,897.23

 

These are the historical rates of growth.  Meaning this is what you can expect to get if you are in one these investments. Take a look at the chart below and consider the history, from 1926 to 2012. The numbers speak for themselves.

26 to 2012
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The truth is that you can do better than 12% growth in your accounts, whether a 401(k), IRA or other investment account. Getting 12% is just a matter of being invested in small cap stocks, as they have averaged 12% over the last 100 years. These percentages are all based on a buy and hold investment strategy. Basically, a do nothing strategy.

What would it look like if you could get 15%, 18% or even 20%?

15% $2,011.36 $4,045.55 $8,137.06 $16,366.54 $32,918.96 $66,211.78
18% $2,287.76 $5,233.85 $11,973.78 $27,393.10 $62,668.77 $143,370.97
20% $2,488.32 $6,191.74 $15,407.04 $38,337.65 $95,396.34 $237,376.63

Small caps have been up almost 18% a year over the last five years and the stock market averaging around 16% a years.   What you need is a risk management strategy to protect these gains.  Risk tolerance is not risk management, but that is for another time.

The point of investing is to grow your money. So grow your money.  Take everything the market will give you and don't give anything back. Make your financial future certain.

Dave Ramsey Investment Calculator link

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