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Tuesday, February 06, 2007

Converting $8,000 to $1 million

MSN.com's article discusses how an investment of $2,000 per year for four years can become $1 million by the age of 67! The key – starting early. In this case, starting the investment of $2,000 at age 16 and continuing to do so for a total of 4 years.

The article also assumes $2,000 is invested in IRA, so you don't have to worry about taxes and that the money earns 10.7% - supposedly the average compound annual rate on large-cap US stocks.

Of course, if you want to put money in IRA, you need to make sure that you have earned at least $2,000 by working if you want to put that much amount into IRA (since IRA requires that money invested put in the IRA account must be from earned income rather than from interest income, etc).

The article again brings up the magic of compounding. The important thing is to start early. Wish, most of us had understood this magic when we are in our teens!

For a similar post on the magic of compounding, check out:

The high cost of procrastination

posted by Ruby @ 7:00 AM

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