Tuesday, March 16, 2010

Money passing through the time....

We all know and love compound interest. So let me tell you an idea of compound interest passing through the generations....

When I was younger, my grandfather told us to work hard and do well in school and do what you loved. Regardless this got me thinking....What would happen if your money, today, was saved and over the course of say 65 years?

As it grows, compounding year after year until the day you retired? A small chunk of change, could grow to be a very large pile of change! What would you guess $5,000 invested for 65 years growing at an annual rate of 8% could turn out to be? Answer: $743,899.23 is present day dollars or $119,199.50 in 65 year dollars with a 3% inflation.

Although, not much, $5,000 still is a sizable amount of money in 65 years. Now for your child to be a "true" millionare in present day terms in 65 years accounting for a 3% inflation, you'd need to invest a bit more money, around $42,000 (without inflation that becomes $6.25 million).

A great idea, I think, would be not to plan so much for your childrens retirement but rather for your grandchildren's. This would allot for soooo much more time. What do you think?

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