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62 Don’t Make Me Say I Told You So

The Importance of Compounding

$500,000 investment over 20 years
10% ($3,363,750)
$4,000,000
$3,500,000
$3,000,000
8% ($2,330,479)
$2,500,000
$2,000,000
6% ($1,603,568)
$1,500,000 4% ($1,095,562)
$1,000,000 2% ($742,974)
$500,000
$0
0 5 10 15 20 years

This hypothetical chart does not account for the possible e ects of taxation on earnings.

As you can see from the chart above, if you can earn an 8%

return over time, perhaps in a portfolio of stocks, versus a 4%
return, perhaps in a portfolio of bonds, you would accumulate
a much larger nest egg to provide an income stream for you

in retirement. The 4% return would grow your $500,000 to

$1,095,562 over a 20-year period. The 8% return would grow
your $500,000 to $2,330,479 over that same 20 years. That’s an
extra $1,234,917 in your retirement account. If you were going

to take income from this account in the future, that extra $1.23

million would mean:

► Approximately $50,000 extra income per year for the next

25 years

Chapter 3: You Must Have Growth In Your Portfolio