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The Power of
Compounding
Rule
#1, don't lose money. Rule #2, never forget Rule #1
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$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
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Start
early
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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
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Insidiousness
of expenses
|
Initial Investment
|
Annual
Return
|
Annual Expenses
|
Lost
To Expenses |
NAV
after
20
Years
|
| $10,000 |
10%
|
1.14%
|
- |
$54,621 |
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$10,000
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10%
|
1.36%
|
$2,165 |
$52,456
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Data
from the US Securities and Exchange Commission:
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An
increase in Mutual Fund annual expenses of 1%
will reduce by 18% an investor's returns after
twenty years.
-
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%.
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All rights reserved.