Investing For The Long Term

Most people earning $25,000 a year believe that their only shot at becoming a millionaire is to win the lottery.

The truth is that you are more likely to be struck by lightning several times than win the lottery

However, with Compounding Interest, anyone can slowly transform small change into large fortunes over time.

Take 100 Americans starting out at age 25. By age 65, one will be rich and four will be financially independent.

The remaining 95 will reach the traditional retirement age unable to self-sustain the lifestyle to which they have become used to living.

Source: Bogelheads’ Guide to Investing: 2005

The Impact of Inflation

1 Source: Energy Information Administration. 2 Source: The College Board, Trends in College Pricing. 3 Source: Motion Picture Association of America.

Gallon ofUnleaded Regular Gas1

Private Four-YearCollege tuition2

Movie Ticket

$0.61

$1.16

$1.36

$1.89

$2.95

1976

1990

2002

2004

2006

$2,117

$9,340

$17,123

$19,710

$31,916

1974-75

1990-91

2001-02

2003-04

2005-06

$2.00

$2.75

$3.55

$5.00

$6.00

$7.00

$8.50

1975

1980

1985

1990

1995

2000

2006

If a child is born today and wants to be a millionaire by age 65, how much will the child have to invest every day to get to $1,000,000?

(Assuming an annual 10% return)

Eric Early

At age 25, Mr. Early invests $4,000 a year for ten years, for a total investment of $40,000. ($4000 a year is $11 a day.)

Assuming an 8% annual return, Mr. Early’s investment will be

$629, 741 at age 65

By starting 10 years earlier and making 1/3 the of the investment, Eric ends up with 29% more $

Larry Late

At age 35, Mr. Late invests $4,000 a year for 30 years, for a total investment of $120,000

Assuming an 8% annual return, Mr. Late’s investment will be worth $489,383

What’s Worth More to You? A Bottle of Soda Every Day or

$921,971?Save and Invest Just $1.50 Per Day ($45.63 per month) Assumes Monthly Compounding at 0.86356% or 10.36% per year

Age When You Start Investing

Amount Saved Per

Month

# of Years Spent

Investing # of MonthsTotal Amount

Invested

Value of Investment at

Age 67

17 $45.63 50 600 $27,375 $921,97122 $45.63 45 540 $24,638 $548,22827 $45.63 40 480 $21,900 $325,12132 $45.63 35 420 $19,163 $191,93537 $45.63 30 360 $16,425 $112,42942 $45.63 25 300 $13,688 $64,96747 $45.63 20 240 $10,950 $36,63552 $45.63 15 180 $8,213 $19,72257 $45.63 10 120 $5,475 $9,62562 $45.63 5 60 $2,738 $3,598

THE LATTE FACTOR

Cut out that Foo-Foo drink at Caribou or Starbucks every day, make your own coffee at home, and save up to $1800 a year. Then invest the difference and become a millionaire

Here’s Oprah’s Latte Factor

http://www.oprah.com/tows/pastshows/200401/tows_past_20040113_e.jhtml

THE END