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Blog #59 Dollar Average Compounding
By Managing Your Money  •  March 20, 2018

I hope you find the formula given in the previous blog interesting. You can use the formula to estimate your median future wealth after investing $X for a specified number of years. In the example given, X is $100,000 and the geometric mean return is 4.88% per year. After 30 years, $100,000 grows to about $4.2 million.  Remember that this is your median wealth. Due to uncertainty, your actual wealth can be higher or lower than the median. That said, the median wealth is still a useful number because it corresponds to the midpoint of the wealth range.

While a sum of $4.2 million is pretty inspiring, most people don’t have $100,000 to plonk into the stock market at one go.  Instead, most of us invest bit by bit, say $10,000 every year or $834 each month. The bad news is that the previous formula doesn’t work in this case.

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