Financial Thought of the Day March 30, 2015: Future Value of a Single Amount—30 Years

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 30 years which is roughly the equivalent of an online bank account —(1.01)^30 gives you a multiplier of 1.3478 x $1,000 = $1,347.85

A single $1,000 amount compounded @ 10% over a period of 30 years which is the historical return of the stock market as a whole --- (1.10^30) gives you a multiplier of 17.4494 x $1,000 = $17,449.40

A single $1,000 amount compounded @ 22% over a period of 30 years which is Warren Buffett level returns --- (1.22^30) gives you a multiplier of 389.7579 x $1,000  = $389,757.89

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