Young Research & Publishing Inc.

Investment Research Since 1978

Compensation was paid to utilize rankings. Click here to read full disclosure.

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Retirement Compounders®
  • Free Email Signup

The Power of a Compound Interest Table

October 1, 2019 By Jeremy Jones, CFA

Compound interest was described as the greatest mathematical discovery of all time by Albert Einstein. Compound interest “Tis the stone that will turn all of your lead into gold,” according to Benjamin Franklin. The late great Richard Russell explained compound interest as the royal road to riches. Below I’ll explain this powerful investment tool and show you how to read a compound interest table.

Compound interest is the heart and soul of investing. Investors lacking a solid grounding in compounding are more likely to suffer from a wandering eye. They can be inclined to favor Hail Mary tactics in their investment portfolios, where the goal of every buy is score big and fast (think options and cash burning startups). The downsides of such an approach are 1.) it rarely works and 2.) loads of volatility. In contrast, investors who truly understand and appreciate the awesome power of compound interest recognize that the combination of time and modest return is a better path to investment prosperity.

Compound Interest Table Still Best

It may surprise you, but in an industry with massive computing power, where algorithmic trading and quantitative models are now prolific, the best way to truly master the awesome power of compounding is still to study an old fashioned compound interest table.

A compound interest table gives you a sense of just how powerful compounding can be at varying rates of return and over varying time horizons. Sure, you can use a calculator or an Excel spreadsheet to find the future value of an investment, but that single data point doesn’t do compound interest justice. Studying the array of compounding factors and how they increase with respect to time and rate of return leaves an indelible mark on one’s mind.

To emphasize the power of compounding, we have included a compound interest table below.

Reading a Compound Interest Table

Move down each column on the compound interest table to see the effect of time on the multiplier. Move across each row on the compound interest table to see the effects of changing the rate of return. Take a look at the row that starts with the 20-year time-horizon. Now move across to the 5% annual rate of return column. Note the compounding factor of 2.65. If you invested $10,000 at a 5% interest rate for 20 years you would have $26,500.

Compound interest table PDF link image

Click here for the Compound Interest Table.

Now staying in the same row, move across to the 10% return column and note the compounding factor of 6.73. That same $10,000 at a 10% compounded annual return would be worth $67,300 after 20 years. The return doubled, but your ending wealth more than doubled. Now double the return again. At a 20% annual rate of return $10,000 then becomes a whopping $383,400 after 20 years. The returned doubled again, but you’re your ending wealth would have increased by a factor of almost 6!

That is profound! And that is the awesome power of compound interest.

For an expanded printer-friendly version of our compound interest table that can be handed out to the kids and/or grand kids click here.

Compound Interest Table

Future Value of $1 at the end of n periods: FVIF k,i = (1+i) n
where n= number of periods, i = rate of return
Period5%7%10%16%20%
11.051.071.11.161.2
21.11.141.211.351.44
31.161.231.331.561.73
41.221.311.461.812.07
51.281.41.612.12.49
61.341.51.772.442.99
71.411.611.952.833.58
81.481.722.143.284.3
91.551.842.363.85.16
101.631.972.594.416.19
111.712.12.855.127.43
121.82.253.145.948.92
131.892.413.456.8910.7
141.982.583.87.9912.84
152.082.764.189.2715.41
202.653.876.7319.4638.34
253.395.4310.8340.8795.4
304.327.6117.4585.85237.38
355.5210.6828.1180.31590.67
407.0414.9745.26378.721469.77

A Real World Example of the Awesome Power of Compounding

For a truly awesome example of the power of compounding consider the Coca-Cola story. If an investor purchased $40 of Coca-Cola (KO) stock in 1919 and spent all of his dividends, the total value of his investment at year-end 2018 would have been an impressive $436,000. Not a bad return, but if that same investor instead chose to smartly reinvest dividends, his initial $40 investment would have grown to almost $16,00,000 by year-end 2018. The power of compound interest truly is the royal road to riches.

Coca-Cola Compounding Example

 

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • The Profound Power of Patience & Compound Interest
  • Compound Interest is Key
  • Warren Buffett and the Power of Time
  • Author
  • Recent Posts
Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. CNBC has ranked Richard C. Young & Co., Ltd. as one of the Top 100 Financial Advisors in the nation (2019-2022) Disclosure. Jeremy is also a contributing editor of youngresearch.com.
Latest posts by Jeremy Jones, CFA (see all)
  • Money Market Assets Hit Record High: $5.4 Trillion - May 26, 2023
  • The Mania in AI Stocks Has Arrived - May 25, 2023
  • The Wisdom of Sam Zell - May 24, 2023

Search Young Research

Most Popular

  • Wellington and Wellesley Funds Not Managed by Vanguard
  • Mr. Protect and Preserve: For Where We’re Going
  • The Power of a Compound Interest Table
  • Paris's Big Plans for the Champs-Elysées
  • The Single Worst Market Timing Event in History
  • “No Way I’m Spending That Much on Those”
  • Should America Move Closer to the Saudis, or Push them Away?
  • A Plan for Cutting Federal Government Spending
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?
  • Will the Fed Hold Up Its End of the Bargain?

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

The Importance of a Balanced Portfolio

Invest with Peace of Mind and Comfort

What Kind of Life Are You Investing For?

RSS The Latest at Richardcyoung.com

  • California – First to Enact Statewide Gun and Ammo Tax
  • “No Way I’m Spending That Much on Those”
  • How Much Can Grid Battery Storage Help?
  • Fighting Russian Power with a Hill of Crosses
  • “You Didn’t Eat That Again, Did You?”
  • Does Donald Trump Need the Pro-Life Vote?
  • What’s Happening with Iran?
  • L’Eau de France: A Fight for France’s Water
  • Speaking of Bad Ideas …
  • The Single Worst Market Timing Event in History

RSS The Latest at Yoursurvivalguy.com

  • “No Way I’m Spending That Much on Those”
  • What Trade Policy Serves America’s National Interest Best?
  • California Wants to Make the 2nd Amendment Unaffordable
  • “You Didn’t Eat That Again, Did You?”
  • Is McCarthy Up to the Task?
  • Rising Costs Are Hammering Commercial Real Estate
  • Your Survival Guy Fishing with Dolphins
  • Judge Shatters California High Capacity Magazine Ban
  • Is Your Water Safe to Drink? NOLA Residents Aren’t Sure
  • Wellington and Wellesley Funds Not Managed by Vanguard

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2023 | Terms & Conditions

 

Loading Comments...
 

    loading Cancel
    Post was not sent - check your email addresses!
    Email check failed, please try again
    Sorry, your blog cannot share posts by email.