Retirement....hehe

[CoffeeIcePapers]

Compound interest and time is your greatest asset.

Keep socking away what you can and don't take it out, ever.

In the next decade you'll probably have paid most of your student loans off which you can put into retirement instead. Make wise choices instead of living on revolving debt. Before you know it you'll have $100,000 in that 401k. Now if you take that with a straight 10% interest annually over 20 years (that's not compounding it semi-,quarterly or monthly....) you'd end up with over $650,000 if you didn't even touch it.

That's how you'll be able to retire...

The problem is that interest cannot be averaged out like that. It doesn't account for negative compound interest. Let's say you invest $1000 for 2 years in the market. Year 1: +10% Year 2: - 10% Using. a mathematical average like you did, it's a wash. 0% No harm, no foul, right?

Actually, you lost $10. Seems insignificant with small numbers and time frames, but volatile markets can eat you up.

Read more here:
http://www.investopedia.com/articles/06/compoundingdarkside.asp

Just something to be aware of.

Here is a calculator which also includes inflation adjustment. The return over the last 40 years hasn't been that great due to the volatility in the 2000s.

http://www.moneychimp.com/features/market_cagr.htm

 

[moxiepilot]

Understood. The point of my post was to encourage retirement savings and show the benefit of compound interest over time.

 

[chrisreedrules]

The problem is that interest cannot be averaged out like that. It doesn't account for negative compound interest. Let's say you invest $1000 for 2 years in the market. Year 1: +10% Year 2: - 10% Using. a mathematical average like you did, it's a wash. 0% No harm, no foul, right?

Actually, you lost $10. Seems insignificant with small numbers and time frames, but volatile markets can eat you up.

Read more here:
http://www.investopedia.com/articles/06/compoundingdarkside.asp

Just something to be aware of.

Here is a calculator which also includes inflation adjustment. The return over the last 40 years hasn't been that great due to the volatility in the 2000s.

http://www.moneychimp.com/features/market_cagr.htm

And that is true, however the sooner you start to the better you will mitigate risks like that. Also, it isn't as simple as you are making it either... When you look at the market over a 2 year period, it's really easy to say that a bad year can completely wipe out earnings from a good year. However when you think in terms of 30 to 40 years of saving and investing, those risks become much smaller and insignificant.