## Friday, March 27, 2015

### Financial Thought of the Day March 26, 2015: Future Value of a Single Amount—10 Years

Sorry I skipped yesterday folks. Here’s a makeup post:

The compounding of money is such a powerful thing. Over time it can build up. Three elements go into the compounding of money—Amount, compound rate and time. It can be denoted by the following formula:

Future Value of an amount = (1 +r)^n where
r = rate of return
n = number of periods

With that said:

A single \$1,000 amount compounded @ 1% over a period of 10 years which is roughly the equivalent of an online bank account —(1.01)^10 gives you a multiplier of 1.1046 x \$1,000 = \$1,104.62

A single \$1,000 amount compounded @ 10% over a period of 10 years which is the historical return of the stock market as a whole --- (1.10^10) gives you a multiplier of 2.5937 x \$1,000 = \$2,593.70

A single \$1,000 amount compounded @ 22% over a period of 10 years which is Warren Buffett level returns --- (1.22^10) gives you a multiplier of 7.3046 x \$1,000 = \$7,304.60