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The Power of Compounding Thumbnail

The Power of Compounding

By: Mike Earl

Everyone knows about the power of compounding, right? Many people have a surface-level knowledge of the concept of compounding, but they likely do not think often enough (or deeply enough) about putting the power of compounding to work in their own life.

Therefore, the power of compounding is a concept that is well-served by ongoing, varied illustrations of its magic at work.

The chart below offers a different way of thinking about the power of compounding. One might call it "reverse-engineering" the power of compounding. You can use the results in the chart below as a guessing game with your relatives around the Thanksgiving table next week.  (doesn't everyone talk about personal finance and investing around the Thanksgiving table, just like me?)

Investing just $216 in U.S. stocks in 1926 would have led you to having $1,000,000 by the end of 2014, assuming you reinvested all dividends. While an 89-year time frame is quite a long time to be an investor, this kind of chart should be a powerful motivator for all of us to invest for the long haul.