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November 14, 2007


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Math is fun when it equals real dollars!

I love compounding as well. Many people don't understand the power of it. I personally believe that nothing beyond your Religion and Spirit is bigger than compounding interest and residual income. If there is, I have not found it as of yet. lol. If you had invested $200.00 per month in the S&P 500 index in the beginning of 1976, with no withdrawals made, it would have grown to $18,275 five years later. After 10 years, the investment would have grown to $55,956, which more than half of your earnings would have been from compound earnings and market growth. After 30 years, at the end of 2005, the investment would have grown to a whopping $686,738 which most of the value would have come from compound earnings and market growth, no the money invested. Actually, you would have invested approx. 10% of the 686K. I have been in the compounding game for a long time and that's why I love it so much. People who have not taken advantage of it can't see it's power.

Where are you putting your money to compound? In a bank it does this, but it doesn't in the stock market. You buy a share with your money and the value may raise, but it doesn't have a portion added to it which will increase the money you make off interest. Or...correct me if I'm wrong...

Well, dividends from the stocks that you own may act like compounding interest when they are reinvested.

Joe - the market does compound year over year. It just isn't so obvious as interest earned from the bank. For example, if you bought a share of Apple at $50 bucks and held onto it for 5 years and they're now worth $100, that is a 100% return on investment. However, if you convert that to compound interest, it comes out to 14.87% compounded annually for 5 years. In essence, the stock market has history compounded 8% annual returns which are big returns compared to any other type of security. I hope I made sense.

Exactly Right. Time is the key. I am trying to convince every 20 year old I know that they need to be saving now. The more you save in your 20s, the less you will need to save later.

Compounding = good. Inflation = bad.


Albert Einstein described compound growth as "the greatest mathematical discovery of all time" and considered it the eighth wonder of the world.

With the economic situation we are in now, does this blog article warrant any worth in today's stock market?

Zad --

We'll see. If you're buying today, I think you'll do well in the next 5 to 10 years. But that remains to be determined.

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