Newspaper article THE JOURNAL RECORD

Amazing Results Produced from Time and Compounding

Newspaper article THE JOURNAL RECORD

Amazing Results Produced from Time and Compounding

Article excerpt

In times like these, when stock market speculators run up numbers as fast as the scores on pinball machines, talk of 10 percent annual returns gets little attention.

This is a market in which takeover talk can jump a stock 25 percent in a day, and when on some days scores of stocks on the New York Stock Exchange may rise or fall by 5 percent without any rumors at all.

It is a fast market, a market of big changes and high expectations, and 10 percent a year seems trivial in comparison. But it isn't. Over time it can produce wonders, like turning $1,000 into $8,000 in less than 25 years.

A review of market statistics shows, in fact, that 10 percent a year is the average return for the period 1926-1988. That is the annual rate for the Standard & Poor's 500-stock index, which includes good stocks and poor.

By taking the time, spending the effort, studying the market and making shrewd selections, many investors have done much better. And unless market logic has been overturned, the future is likely to be as good.

Using the law of 72 - in which the annual rate of return is divided into 72 to obtain the number of years it will take for a sum to double - a $1,000 investment at 10 percent might be worth $4,000 in about 15 years.

Not good enough? Then assume you are highly talented, select wisely and benefit from a surging economy, and thus obtain a 15 percent return. By the time those 15 years have elapsed your $1,000 would have grown to $8,000.

Investment history shows that relatively few investment advisers could top that record, no matter how convincing their literature, their graphics, their publicity, their claims or their self-acknowledged brilliance. …

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