a small investment can really add up

27 03 2008

I saw a quote today about investing that made me think.  I already invest money to have a better future, but this quote puts things in a different perspective, showing how easy it is to accumulate wealth if you will be disciplined.

If twenty years ago you had invested the price of a Happy Meal every day, you would have been wealthy by now! ~ T.D. Jakes, Reposition Yourself

That might sound crazy to you.  How can $4 day make someone wealthy?  That’s where the power of investing with compounding comes in.  Let’s look at the math of this.

Supposing you were investing $4 every day, you would put back $1,460 per year.  Add that to your IRA or investment portfolio each year.  Let’s say you average a 6 percent return each year (which is easily done — you should get more than that).  If you keep adding $1,460 every year, and all the returns are reinvested and compounded annually, you would have $61,611.80 after 20 years.  You put in “only” $29,200 over those 20 years.  (Remember that it was just $4 per day!)

What if $4 per day is too much for your budget?  After all, that is about $120 per month.  Maybe you’re living month-to-month already, barely making ends meet.  Let’s consider the stats for $2 per day, which is around $60 per month.  That would be $730 a year, and using the same stats as before, you would have $30,805.90 after 20 years, by putting in “only” $14,600.  Investing just $2 a day and never touching it will double your money in 20 years.  Wouldn’t that make a nice college fund?

Hopefully you’re already doing something like this for your retirement fund (401k, IRA, etc.), but with more money, especially if your employer matches any.  But if you foresee yourself needing more money in the future, like for children going to college, another IRA setup like this is a good way to build up a lot of money.

FYI, you can get certain annuities that will guarantee a 6 percent return per year, and some will even give you a bonus up front if you leave it invested for a certain number of years.

If investing seems too complicated to figure out or if you just don’t want to mess with it, you can get a financial advisor who can set these accounts up and monitor them for you.  They might cost a little bit, but it would save you a lot of time and effort, plus they may have access to resources that you won’t easily find on your own.  If you want to try it yourself, there are programs like ShareBuilder.com that allow you to invest a little at a time.  (I haven’t tried them, so research it before you invest.)

As you can see, investing can really add up, if you are consistent and patient with it.  It doesn’t have to be complicated or very risky (although there is always some risk, but sometimes not much more than having your money in a savings account).  Investing is one of the ways to make your money work for you.




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