The Power of Compounding

 

Rule #1, don't lose money. Rule #2, never forget Rule #1

$1,000 Initial Investment

Return year 1 Return year 1 Annual Return  NAV of $10,000 after 2 Years
Portfolio 1 -20% 40% 18.32% $11,200
Portfolio 2 20% 20% 20% $14,400


 

Start early

Initial Investment

annual additions Annual Return Total Invested

NAV after

 20 Years

$10,000 0 10% $10,000 $67,275
- $1,000 10% $20,000 $57,275


 

Insidiousness of expenses

Initial Investment

Annual Return Annual Expenses Lost To Expenses 

NAV after

 20 Years

$10,000 10% 1.14% - $54,621
$10,000 10% 1.36% $2,165 $52,456


Data  from the US Securities and Exchange Commission

  1. An  increase in Mutual Fund annual expenses of 1% will reduce by 18% an investor's returns after twenty years.

  2. Even as the assets of mutual funds went from $52 billion in 1979 to $4.45 trillion in 1999 -- an increase of 8,520%, the expense ratio of the average annual expense rose from 1.14% in 1979 to 1.36%.

 

 

 

 

 

Tel: (213) 915-4015

 

Copyright 2005-2009, All rights reserved.