The most powerful
force in the universe is compound
interest. —Albert
Einstein
Your stocks and bonds generate income from capital gains, dividends, and distributions. When you keep that income in your account, by holding long-term or reinvesting in purchases of additional shares of stocks or bonds, your earnings generate additional earnings - and you reap the rewards of compound returns. Over many years, the returns you get from compounding will eventually dwarf your initial contributions. Review the table below to see how an initial contribution of $10,000 can benefit from the effects of compounding: notice the rapid increase in growth that comes after many years of investing.
So does your return matter? Is a 5% return all that different from a 15% return? Is 10% really that far away from 25%? The answer is resoundingly yes; even a few additional percentage points per year will dramatically alter your portfolio.
The table below shows how a hypothetical investment of $10,000 would grow with different annual returns. Niehaus Liberty does not guarantee any particular annual return (indeed, beware of anyone who does), but you can get a sense of our performance here.
Annual
% |
Start |
Year
5 |
Year
10 |
Year
20 |
Year
30 |
5% |
$10,000 |
$12,763 |
$16,289 |
$26,533 |
$43,219 |
10% |
$10,000 |
$16,105 |
$25,937 |
$67,275 |
$174,494 |
15% |
$10,000 |
$20,114 |
$40,456 |
$163,665 |
$662,118 |
20% |
$10,000 |
$24,883 |
$61,917 |
$383,376 |
$2,373,763 |
25% |
$10,000 |
$30,518 |
$93,132 |
$867,362 |
$8,077,936 |
30% |
$10,000 |
$37,129 |
$137,858 |
$1,900,496 |
$26,199,956 |
|
