The Amazing 7% Annual Growth Rate

Granted, making the first million dollar is the most difficult.  I shan't dwell into this.  But for those who already have this $1 million, they should learn all about the amazing maths behind growing this amount at 7% per year.

What does growing at 7% per year look like?  It means doubling your money every 10 years.  Therefore, if you have $1 invested today, this $1 will grow thus:

00 year - 2010  $1

10 year - 2020  $2

20 year - 2030  $4

30 year - 2040  $8

40 year - 2050  $16

50 year - 2060  $32

60 year - 2070  $64

Study these numbers carefully.  Note the incremental amount of money grown in each of these 10 years period below:

00 year - 2010  $-

10 year - 2020  +$1

20 year - 2030  +$2

30 year - 2040  +$4

40 year - 2050  +$8

50 year - 2060  +$16

60 year - 2070  +$32

In particular, note that the incremental growth for each of the latest 10 year period, exceeds ALL the growth of the preceding years.  Therefore, the incremental growth of the 10 years from 2060 to 2070 exceeds ALL the growth of the previous 50 years from 2010 to 2060.  

Herein lies the power and magic of compounding.  Understanding this is very important to grow your wealth.  Starting early in your investing is extremely important.  Not losing money is important as a moderate growth rate in the absence of losses will translate to a large gain over many years.

Warren Buffett has been investing since his teenage years.  Now approaching his 80s soon, he has been investing for the last 60 years.  It is not surprising that he is one of the richest man in the world as he has been able to compound his money at phenomenal rates for so many years.  What is perhaps worth mentioning is that everytime his wealth doubles over a given period, the incremental wealth for that period exceeds ALL the sum of the incremental wealth for all his previous investing periods.

Now that you have your first $1 million, go forth and multiply.  You need not aim for too high a growth.  A modest 7% annual growth rate over many years can transform this figure into a large number.  Of course, you may be able to do better than this.   You will also be amazed by the numbers that come with an additional 1 or 2% additional growth per year.

Do not make mistakes.  Luck should play little part in your investing.  Investing is fun.  It is safe.  

Ref:

The Rule of 72

http://www.intmath.com/Money-Math/rule-of-72.php

The magic of exponential growth.  What does growing at 7% per year mean to you?

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