The best chance to acquire measurable wealth lies in developing the habit of putting money where it can do the most for you, adding to your investments regularly. Your rewards can be considerable. Suppose you put $5,000 in a savings account where it earns 2% interest rate, compounded annually. Twenty years later, you’ll have $7,430. Alternatively, you put $5,000 in one-year certificates of deposit (CDs) with instructions to roll over the proceeds into a new CD every 12 months. In addition, every month you buy a $100 CD and issue the same instructions. Over 20 years you earn an average of 3.44% annually. That nest egg becomes more than $44,000. That’s a lot better, but it’s not going to finance a worry-free retirement. Suppose your goal is to have a nest egg of $250,000. You’ve got 20 years to get there and $5,000 to start. You’re willing to investigate investments that should boost your return above what you’d earn in a guaranteed account. What’s a reasonable return to plan on, and how much more will you have to invest along the way?
Chris Bryant is an American financial advisor.