No. of Recommendations: 7
Of course I agree with Ray. The math he's displaying is math hundreds of great investors have done over the years...It's basic math. It works.

It's called the Magic of Compounding.

If I had taken $1,000 in 1957 and invested it all into Phillip Morris (now Altria) stock instead of an S&P 500 index fund, and I allowed my dividends to reinvest every quarter, for 46 years, that $1,000 - without any other infusions of cash on my part - would have grown to $4,626,4024 by 2003.

Do you think that's crazy talk?

What if I told you the CAGR for Phillip Morris during those 46 years (all documented in several of Dr. Jeremy Siegel's books) was an astounding 19.75%? (Again, with dividends reinvested.)

I'm not being rude here but here's what I suggest you do.

Let's take that $1,000 and multiply it by 19.75% forty-six times:

1. In January of 1957, we take $1,000 and invest it in Phillip Morris stock with a DRIP program reinvesting our dividends.

Knowing that CAGR of Phillip Morris was 19.75% we mutliply our intitial investment of $1,000 by 19.75% and we find we have an extra $197.50 added to our intitial stash, giving us $1,197.50 overall at the start of 1958.

2. In 1958 we take the figure of $1,197.50 and multiply it by the CAGR of 19.75%.

That gives us another $236.51.

Add $236.51 to $1,197.50 to get $1434.01 by the start of 1959

3. In 1959 we now have $1,434.01 to multiply by that CAGR of 19.75%.

This gives us $283.22 to add to our growing capital base.

So, at the start of 1960 we now have $1717.23

4. In 1960 we now have $1717.23 to mulitply that CAGR of 19.75%.

That gives us $339.15 to add to our growing capital base.

So $339.15 + $1717.23 = $2,056.38 and that's what we start with in 1961.

Now using a rough approximation of the law of 72, you can do the remainder of this work in you head:

The End point is 42 years from now, or 2003.

And we see, using the law of 72 we are going to double our money every four years. (actually less, but, why quibble as I've just show you we've more than doubled money in four years time using a CAGR of 19.75%)

So let's be very conservative and say we double $2,000 10.5 more times (or 42 years divided by 4 gives us 10.5 more doubles of our stake of $2,000.)

Step one: $2,000 becomes $4,000
Step two: $4,000 becomes $8,000
Step three: $8,000 becomes $16,000
Step four: $16,000 becomes $32,000
Step five: $32,000 becomes $64,000
Step six: $64,000 becomes $128,000
Step seven: $128,000 becomes $256,000
Step eight: $256,000 becomes $512,000
Step nine: $512,000 becomes $1,024,000
Step ten $1,024,000 becomes $2,048,000
Step 10.5 $2,048,000 becomes $3,072,000 (roughly)

Step 10.5 would be 2003; however, by Dr. Jeremy Siegel's exact calculations in his books of that CAGR of 19.75% over 43 years, you would have turned $1,000 in 1957 dollars into $4,626,4024 in 2003 dollars and keep in mind this was withoutany further investment funds added monthly. This was simply compounded growth using dividend reinvestment of one stock, Phillip Morris, which outperformed the S&P 500 index since 1957.

So what Ray has been talking about is what I'm taking a little more time here to illustrate.

Give me an 8% or 9% CAGR and invest $1,000 more ever month for 43 years, and I tell you what, my friend, I'll show you a multi-millionaire, no doubt about it.

All Ray has done is challenged you to use his spreadsheet, check his figures, see for yourself.

But you can do this with a Google calculator, a pen, and a yellow legal pad. Do the mulitplying. Watch the Magic of Compounding begin to go past four figures, five figures, six figures, to 7 or 8 or 9 figures.

It's not rocket science.

It's basic match...
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.