Compound Interest Doesnt Add Much To Your Wealth

| Total Words: 587

The biggest gripe that I have with a few famous financial planners is their myth and awe of compound interest. They say, compound interest is the 8th Wonder of the World according to Einstein, and will make you a million for your retirement if youd only skip a few trips to your local coffee shop!! In my opinion, compounding your return on investment is a tiny factor in wealth building compared to how much and how often you save money.

Growth charts used by the people struck by compounding ignore all forms of taxation, fees, commissions, inflation, and then misleadingly uses an average return of 10-12%. Lets start with the average stock market return of 10.7% This return rate is the most frequently published number to reflect a stock market average. There are many problems with market averages, but the 10.7% is not any kind of accurate annual compounded growth rate. As an example, if the stock market has a loss of 10% one year, and a 20% gain the next year, these zealots say that the average return for these two years is +5% (+.2-.1)/2). This is a mathematical failure to add. The correct return is only 3.9%, and again, this doesnt include fees, commissions, taxes and...

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