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June 08, 2006

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Hey, I didn't get your name, but I love your blog, it is a great information resource, and I will be featuring a link o it on my blog. I also may want to take a few brief quotes from your pages, with trackbacks of course. contact me!

Gabe --

You can email me if you like. See this link for details:

http://www.freemoneyfinance.com/2005/04/free_money_fina_4.html

Compound interest is a very powerful thing. Consider a hypothetical situation. You are 40 years old. Your parents are now retired and your own future retirement is seeming very real all of a sudden. You manage to put $5,000 into your 401(k) this year and it is in a bond fund earning 5%. When you hit 60, that piece of your nest egg will have grown to about $13,250.

Now, here's the thought experiment. If you were able to double your contribution to $10,000, you'd double the end result to $26,500. But here's the power of compounding. To double your results, you can also invest in something returning 8.7%, not double to hypothetical 5% bond fund. Another way to double your retirement money, would be to start 14 years earlier, at 26. That's at the meager 5% return. The doubling time gets better when you are considering average long term returns in the stock market.

My point here is that starting early, and investing in something with a good return are more important than putting lots of money into your retirement account.

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