Exponential Growth in Investments

The Exponential Growth Behind Money Investments
WHO WILL BECOME A MILLIONAIRE ACTIVITY

If you have the self discipline to put your money in a savings account, or in a CD, (certificate of deposit), or in a municipal bond, or even in stocks, and then to keep it there for several years, you can let the power of exponential growth make you wealthy.

You almost have to run the numbers before you believe it though. Remember, the longer you leave it in, the richer you get.

It's a lot like the "doing dishes" scenario where you trick someone into paying you 2 cents on the first day of dish washing and then 4 cents on the second day and 8 cents on the third day etc.. It's a power of two problem. Each day you make two times more. So the formula for money made on any given day is just 2^(days worked).

It seems at first that you aren't making much money, but if you stick it out, on the tenth day you will make 2^10=1024 cents, and that is the same as $10.24.

Now on the next day you make 2^11=2048 cents, or $20.48.

And on the twelfth day you will make 2^12=4096 cents, or $40.96.

By the fifteenth day you make 2^15=32768 cents, or $327.68.

COOL HUH! It's almost unbelievable.

Let's say you kept this up for a month. On the last day of the month, you will make 2^30=1073741824 cents. That's equal to $10,737,418.24!!!! Almost eleven MILLION dollars made in one day!

Now this same idea is behind money investments. The key to remember here is that, the longer you leave it in, the richer you get.

Let's take a look at some examples:

You invest $324 in a regular savings account at 3% and let the interest sit there, (this is known as compounding your interest), for 5 years.

The way you figure out the value of your account at the end of five years is like this:

value = (initial amount invested)(1+your percentage rate written as a decimal)^(number of years invested)
Click HERE to see how we get this formula.

=$375.60.

The value after 10 years of investment is,

=$435.42.

The value after 30 years of investment is,

=$786.43.

You can see here it takes quite a few years to double your money if you have it invested in a regular savings account. Plus remember, taxes will have to be paid on all the interest that accumulates each year.

Now if you take the same amount $324, and buy a CD at say 6% your money will grow faster.

The formula is the same, only the percentage rate is different.

In five years it looks like this,

=$433.58

In 10 years it looks like this,

=$580.23

And in 30 years you will have this,

=$1,860.89.

Notice that the 6% rate yields more than twice as much value as the 3%. This is why people are always shopping for the highest interest rates they can find when investing their money.

Remember of course with CD's you still have to pay tax on the interest you make.

*Some municipal bonds will give you the same kind of rates as a CD, but the interest is NOT taxable.

Now when investing money in the stock market, you can earn very high percentage yields, but the reason is that there is a certain amount of RISK too. You can also LOSE a high percentage of your money or even all of it if the companies you invest in go out of business.

In general, people who invest in stocks buy them in several different companies to help guard themselves from this risk. If one company is doing poorly, the others will usually make up for it.

Let's take that same $324 and invest it in stocks which yield an average increase in value of 15%.

In 5 years it looks like this,

=$651.67.

In 10 years it looks like this,

=$1,310.76.

In 30 years you have this,

=$21,452.61.

It's amazing how big your $324 gets when invested for a long time at a high percentage rate.

Remember, here again, when you sell your stocks and realize all that gained money, the gain is TAXABLE.

Now that you know how to figure out the value of your investments go to the
WHO WILL BECOME A MILLIONAIRE ACTIVITY.

COMPOUND INTEREST EXAMINED
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end of year	calculation needed	formula	value
1	(324)(1.03) *You multiply by 1.03 because the 1 will maintain the initial amount invested, and the .03 will increase that amount by 3%.		$333.72
2	(value at end of year 1)(1.03) or [(324)(1.03)](1.03)		$343.73
3	(value at the end of year 2)(1.03) or [(324)(1.03)(1.03)](1.03)		$354.04
n	(value at the end of year (n-1))(1.03)		changeable

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