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Save and Compound

INVESTMENT compounding over long periods can produce impressive results—but the results are even more impressive when you couple that compounding with regular savings. For instance, if you invest $100 initially and left it to grow at 5% a year, you would have $339 after 25 years, thanks to the 239% cumulative gain. But if you invested $100 at the start of each of the 25 years, for a total of $2,500, you would have $5,011 after 25 years.

You can do this calculation with Excel or with a financial calculator, such as Texas Instruments Business Analyst II Plus (TI-BA II Plus). Alternatively, you could use an online savings calculator, such as the Compound Savings Calculator at Dinkytown.net or the Finance Calculator available at Calculator.net.

One warning: Pay attention to when additional savings are credited. You end up with a lower accumulated value if additional savings are credited at the end of each year, rather than at the beginning, because that means those savings miss out on a year of investment gains.

Next: Compounding and Time

Previous: Taxables vs. Munis

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