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By Brooks A. Mick, M.D.
July 25, 2006 First you take $5,000 dollars and invest it in a no-load total market mutual fund. Think about the rule of 72. That is, if you divide the interest rate you are receiving into 72, you will find the number of years needed to double your money. And then think about compound interest. If you consider the rate of return from the stock market overall to be 8%, which is pretty close, year in and year out, then you will double your money in nine years. So you will have $10,000. Which may not sound like much. But then in nine more years you will have $20,000, and nine years later, $40,000, and nine years later, $80,000, and so on to $160,000, $320,000, and $640,000. And if it is in an IRA or other tax-free account, that is indeed what you will have. Now how many years did you have to leave that $5,000 alone before you had $640,000? Do the math. How about if you started with $10,000? You would have $1,280,000. Okay, you say, but where do I get the $5,000? I have all sorts of ideas. 1) How about cigarette money? A pack of cigarettes costs, for argument's sake, $3. Which multiplies up to $90/month. Stop smoking and you would have $5,000 to invest in 4.6 years. But it's better than that. Start putting the $3/day into the bank and you would begin earning interest from the first day and your $5,000 would arrive a little sooner than 4.6 years. Drink a little less beer. Without the cigarettes and the beer, you'll live long enough to enjoy your retirement. 2) How about if the government put $5,000 bucks into the stock market when each child was born, terminated the Social Security program, sold all the desks and buildings and office spaces needed to house the SoshSec bureaucracy, saved the salaries of all those bureaucrats needed to run it, and used that money to pay the $5,000 per child. And when the kid turned 63 years old, he'd have his $640,000 in the bank and could live on it instead of getting his meager pittance from the government each month. Better yet, start each kid with $10,000 and everybody in the country would retire a bloomin' millionaire and we could stop all the class envy cr-p. 3) How about if a kid, on getting out of high school, simply refuses to buy a big-screen television, an audio-visual system, a new car, or other big purchase and invests his $5,000 and lives a bit leaner for a couple years? He'd have a lot better start in life, he'd save all the finance charges from the big-ticket items, and he wouldn't have to depend on Big Daddy Government for his measly dole when he retires. 4) How about if a parent lived a bit cheaper, saved money, and put $2,000 into an account when his children were born? By the time they were eighteen, it would have grown to $8,000 and they would be well on their way to millionaire status. 5) How about someone concerned about his retirement take an extra part-time job for 6 months and instead of blowing it on a fancier car, put it into his retirement account when he's still young enough to have the magic of compound interest and time on his side? 6) How about if your parents taught you to put away a few dollars a month from the time you were getting an allowance or mowing the neighbor's lawns? You could have earned and saved your way a considerable distance toward that $5,000 investment by the time you got out of high school. A kid gets out of high school. He puts away $2,000 each year for six years. That is $12,000 dollars at the end of six years. Except he's already got a little interest on top of that, but I won't count it. Then he stops depositing money. Then after 9 years, he has $24,000. After 18 years, he has $48,000. And so on. Another kid gets out of high school. He says, "I'm going to buy me a cool car now and get the chicks to notice me, and when I'm older and have a better job, I'll save $2,000 a year for 40 years and I'll catch up with Kid#1. So in six years, he puts $2,000 into his fund. And next year $2,000, and next $2,000 and so on. And by the end of nine years, he's put in $18,000. But by then, Kid#1 has $24,000 from his initial investment $12,000! So Kid#2 keeps adding $2,000 a year for nine more years, by which time he has amassed $54,000 and pulled ahead of Kid#1 by a little bit. But instead of saving $12,000 over six years, he's had to save $36,000 over eighteen years to do it. It pays, therefore, to start saving young, when you have time and the rule of 72 on your side. And I note that YOU ARE NOT GETTING ANY YOUNGER. And if you have kids, it's not too late to get onto them about saving some money while they have time on their side. And there is really no reason to stop after your first $5,000 or $10,000. Gee, you could put in another one or two thousand a year and end up REALLY REALLY RICH! And I note this is an excellent argument for privatizing Social Security. Do you realize how rich you would be if you had invested all that money the government has sucked out of your paycheck since you got your first job? ------------ About the author Brooks A. Mick: Physician, still practicing medicine but retired from the US Army. Write just for the fun of it, but working on novel in the vein of Tom Clancy's politico-military genre. Email: brooks15@cox.net Comment on this article here! ------------ All articles are EXCLUSIVE to Useless-Knowledge.com and are not allowed to be posted on other websites. ARTICLE THIEVES WILL BE PROSECUTED! |
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