-Or Why Reinvest Your Dividends : The Apprentice Millionaire Portfolio – available at Amazon.com) )
Here’s a mind-blowing example from a study conducted by Richard Russell of the Dow Theory Letters on the power of compounding:
An 18-year-old girl puts $2,000 into an account each year from the ages of 19-25, then stops contributing and lets it compound at a rate of 10% until age 65. That means she has contributed only $14,000 in total. But because of compounding, by age 65, she’s almost a millionaire, with $944,641 in her account.
Her Idiot Brother
Now, let’s say this girl has a twin brother. He’s not as disciplined and continues to blow his money on useless things. Finally, at age 26, he realizes he needs to start saving, too.
He puts $2,000 per year into his account starting at age 26. He also lets his money compound at a rate of 10% until age 65. Except he contributes $2,000 every single year from ages 26-65. That means he’s contributed $80,000 in total… more than five times what his sister has contributed.
By age 65, he’s almost a millionaire, too, with $973,074 in his account.