Wealth Accumulation: Step by Step

We all like to watch things grow. When it is money and your own money, it is even more fun! When it comes to wealth accumulation, there are some easy concepts that will help increase your overall wealth. The following examples will help illustrate some of these concepts.

Scenario #1

A person deposits $200 per month for 5 years. If they earn 6% per year, they will have $14,023.78 at the end of 5 years. If they earn 8% per year, they will have $14,793.43 at the end of 5 years. By earning 2% more on their investment, they will have $769.65 more to their credit.

Point: The interest rate or rate of return can make a difference. Even a few percentage points can add to your bottom line!

Scenario #2

A person deposits $200 per month into an investment that earns 6% per year. If they continue for 5 years, they will have $14,023.78 at the end of the 5 years. If they continue for 40 years, they will have $400,289.64 at the end of 40 years. By investing the money over a longer period of time, they will have $386,265.86 more to their credit.

Point: The longer you continue to invest, the more you will accumulate, so start early.

The above examples illustrate the effects of rates of return or interest rates and time. There are two other concepts that also effect your investments.

First, discipline is a key element to investing. By investing on a regular basis, perhaps monthly, your investment will continue to grow. You can also benefit from dollar cost averaging by buying units each month. Secondly, compound income will work to your advantage. This means earning income on the income previously earned. Compounding accelerates the growth of your investment because you are earning income on your deposits and income (interest, dividends, capital gains), previously deposited to the account.

The best investment growth will occur within your qualified retirement account because the income is tax sheltered. The compounding effect is greater because no tax is deducted until later, so more money is available to work for you. Even a non-qualified investment account will grow over time. This type of account could be a valuable part of your retirement planning.

When all these concepts come into play the result can be astounding. Start investing as young as possible and plan to leave the money invested for a long time. Having a monthly deposit plan is a sound investment process and be disciplined in maintaining regular deposits. If necessary, start with as little as $25 per month. In time, the amount of the deposit can be increased. Getting started is important and small amounts will grow too! Look for a reasonable and steady rate of return. If you can average at least 8% per year, year after year, you have done well. Should you earn a higher rate of return, good for you! But be careful, as high rates of return can also mean increased investment risk. The increased risk might also result in lower returns. Finally, leave the money invested so compounding of returns can be maximized.

A representative from Estate and Financial Planning Ministries is available to work with you to identify investments to help meet your unique goals. Everything is confidential. There is no obligation and nothing to buy. Contact us at efp@CofChrist.org, or call 1-800-884-7526 (1-877-526-7526 in Canada).

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