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If you invest $100k and earn a 7% return each year, here is how your money will grow over the course of 10 years:
Your $100k will blossom into $196k, which means your investment will be worth 1.96 times ($196k / $100k = 1.96) its original amount after 10 years.
What’s fascinating is that no matter how much you start with, your initial investment will always be worth 1.96 times its original amount after 10 years (assuming a 7% annual rate of return and no additional annual contributions).
For example, suppose you start with $200,000 instead:
Your $200k will turn into $393k, which means your initial investment will again be worth 1.96 times ($393k / $200k = 1.96) its original amount after 10 years.
This table shows how much various initial investments will be worth after 10 years assuming they compound at 7% each year:
No matter how much you start with, your initial investment will always be worth 1.96 times its original amount after 10 years.
This fascinating phenomenon is consistent across different time spans too. Suppose you let that $100k earn a 7% annual return for 20 years instead:
Your $100k will turn into $386k, which means your initial investment will be worth 3.86 times ($386k / $100k = 3.86) its original value after 20 years.
And no matter how much you start with, your initial investment will always be worth 3.86 times its original value after 20 years, assuming a 7% annual rate of return.
Suppose you start with $200k instead and let it compound at 7% for 20 years:
Just like the previous example, your ending amount is 3.86 times bigger ($773k / $200k = 3.86) than the initial amount.
To more generally summarize these results, this table shows what an initial investment will be worth after different spans of time for different annual rates of return:
Compound interest has the ability to generate real wealth over the course of decades. It’s up to you to supply it with enough capital to generate that wealth.
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