Time Value of Money

Story of Two Savers

The Story of Two Savers

The key to the chart above is that Saver B did not wait to start his/her savings program. Even though the rate of return is historical, the principle remains the same. Because Saver B had an 10 year head start, Saver A was never able to catch up, even though Saver B stopping investing after age 27. That is one way of looking at the Rule of 72 and understanding the power of compounding and the importance of following a regular plan of saving and investing. Here is another example with the effects of different rates of return on a fixed sum of money:

The Rule of 72

The Rule of 72

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