Step 1: Change Your Life With One Calculation

If there were an eighth wonder of the world, we'd nominate the equation for compound interest: Your money x (1 + i)^n. (If you're not a math geek, don't worry; we're going to decipher that for you.)

Albert Einstein (or maybe it was Yogi Berra) called this deceptively simple formula the "greatest mathematical discovery of all time." We call it your ticket to financial independence.

That's right, just three straightforward inputs can change your life: the amount of money you invest; the rate of return you get; and how much time you have to let your money grow.

Hate math but like money? Read on.
Since words cannot adequately describe the magical nature of compound interest, let's try a few visuals.

Here's how a single $1,200 investment grows over time in four savings scenarios.

How a single $1,200 investment grows


Savings Account (0.1%)

Money Market Fund (1%)

Certificate of Deposit (2%)

Stock Market (9%*)

Initial investment





5 years





10 years





15 years





25 years





30 years





35 years





40 years





*Based on the stock market's historical rate of return.

As you can see, simply socking away one lump sum and leaving it could turn $1,200 into nearly $40,000 over 40 years. Not only have you earned interest, but you've earned interest on your interest. And all you had to do was invest your first paycheck.

That said, let's be honest: $37,691 ain't what it used to be. So let's make one small revision and invest $1,200 every year. Behold compound interest in a mildly caffeinated state.

A more compelling table than the previous one


Savings Account (0.1%)

Money Market Fund (1%)

Certificate of Deposit (2%)

Stock Market (9%*)

Initial investment





5 years





10 years





15 years





25 years





30 years





35 years





40 years





*Based on the stock market's historical rate of return.

Now we're at half a million. Not bad, right? Still, we think you can top it. In fact, it's not a stretch to get near that magical $1 million milestone. Just save $2,800 a year (a mere $233 a month), and at 9% you've got a million dollars in 40 years. Or stick with the $1,200 annual contribution but improve your investing skills (which the rest of this series will show you how to do). If you are able to best the stock market's average annual returns by a mere 3 percentage points, the $1 million prize is yours.  

If we could, we would cue a soaring chorus of angels opening the doors to usher you into the Valhalla of investing ... but we misplaced that file somewhere on our hard drive.

And the best part about compound interest is that it works the same for everyone, whether you have $20 to invest or $200,000. Go ahead, tinker with this compounding calculator to see what we mean. If you don't believe you can become a millionaire with just the resources you have right now, keep reading.

The amazing tale of the Mississippi washer woman
Oseola McCarty was born in Mississippi in 1908. For nearly 75 years, she lived in the same simple house, washing other people's clothes for a living and putting whatever money she could into savings accounts at local banks.

In the summer of 1995, Oseola made local and then national headlines when she donated $150,000 to the University of Southern Mississippi to establish a scholarship fund. "I just figured the money would do [scholarship recipients] a lot more good than it would me," she said. It soon came out that this washer woman had managed to amass nearly one quarter of a million dollars over her lifetime.

Time -- a key part of the compounding equation -- helped turn her meager early investments into hundreds of thousands of dollars.

We like this ending better
As remarkable as the Oseola McCarty story is, the ending could have been a blockbuster. After she died in 1999, one of her bankers wrote to us saying: "Time was able to turn even the modest returns of her early investments into hundreds of thousands of dollars. If we had been able to introduce her to equities earlier, she would have left millions instead of thousands."

Remember, the amount you save and your time horizon -- how long you have until you need the money you've invested -- are only two-thirds of the compounding equation. Oseola excelled in both. But she did pay a price for ignoring the rate of return on her investments.

Typically, the more risk you are willing to take on (by, say, investing in stocks rather than bonds), the higher your potential return. But risk is a four-letter word to a lot of folks: They're happy to settle for lesser returns to avoid it.

Bad idea. Stuffing all your savings into the Serta -- or sticking only with safer investments like Treasury bills or bonds -- is even more disastrous. It's not simply that they return less. It's that they barely keep up with the rate of inflation, and that means your retirement dollar is not going to go as far as you think. We Fools believe the best place for your long-term (key word ... as you'll discover in Step 4) savings is the stock market.

Your golden ticket to financial independence
There you have it: Financial independence is just three variables away. So start saving now (as much as you can), and invest it well. Because the sooner you get the wonder of compounding working for you, the sooner you'll reach your financial dreams. And that's exactly what this series will help you do.

Action: Who wants to be a millionaire? That's what we thought. Here's the magic code you need: 10,000, 2,800, 0%, 40, 8%. Plug in those numbers -- in that exact order -- here.

Step 1 was updated Jan. 4, 2016.

How to simplify investing -- in just 30 minutes a day
It’s roughly the same amount of time it takes to walk a quarter-mile on a treadmill… whip up dinner… read your children a bedtime story. And it’s how little time it takes to learn everything you need to know to begin investing in the stock market. (Which -- if you’re like most of us -- is something you know you should do… but keep putting off.) The Motley Fool’s Director of Investor Learning is eager to help you start down that venture -- absolutely FREE -- in just 30 minutes a day, for 13 days. Simply click here to get started.

Read/Post Comments (93) | Recommend This Article (1256)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 28, 2009, at 11:56 AM, pjlrsword wrote:

    This article would be even better if the formula for compound interest was correct - it's Your money x (1 + i)^n, not (1 + i^n).

  • Report this Comment On November 28, 2009, at 9:00 PM, lenniscata wrote:

    I agreed with pjlrsword comment, it confused me at the beginning until I googled it and remembered the correct formula.

  • Report this Comment On December 01, 2009, at 2:01 PM, XMFSchool wrote:

    Ah, good catch, pjlrsword! We've moved the exponent to the proper place outside of the parenthetical. Now those compounding calculations will be correct.

  • Report this Comment On December 15, 2009, at 11:19 AM, denghy wrote:


    If they were not able to come with the right formula ,

    I ask myself.......How can I think they are for real???

  • Report this Comment On December 27, 2009, at 5:24 PM, HoustonThomas wrote:

    The point is still valid. Compounded interest over an extended period of time produces a heck of a lot of dollars.

  • Report this Comment On December 31, 2009, at 4:49 PM, djvalder wrote:

    Only if the interest rate is above a couple of % above inflation which right now in any form of savings account it s not.

  • Report this Comment On January 14, 2010, at 10:20 AM, vdickman wrote:

    but reality is that the stock market has blown a lot of people's savings these days and the best form of compound interest comes from smart investments and not foolish ones. Our mutual funds portfolio has been returning 12% conservatively prior to the drop and now over the last year or so we've been seeing 25-55% returns! 2009 was our best year yet! These returns cost less from a management standpoint and are astounding! Good growth mutual funds are the real ticket!

  • Report this Comment On January 21, 2010, at 6:35 AM, khuff55 wrote:

    Okay, vdickman, can you please list some "good growth mutual funds"? Mine doesn't seem to be one of them.

  • Report this Comment On January 22, 2010, at 12:09 AM, Deneene2Pres wrote:

    Okay can anyone use the scroll button. It says Your money x (1+i)^n

  • Report this Comment On January 25, 2010, at 11:38 PM, SouthBayRider wrote:

    can anyone tell how I can become an awesome stock investor. i'm studyin mechanical engineering right now but i want to learn how to become a successful investor

  • Report this Comment On February 06, 2010, at 5:56 AM, mettepac wrote:

    part of my goal is to invest on something that has a compounded returns.

  • Report this Comment On March 12, 2010, at 1:50 AM, KvHagedorn wrote:

    Time also makes one old. Oseola McCarty likely donated her nest egg because she was in her late eighties and probably in such poor health that she knew she could never really enjoy the fruits of her savings herself.

    While it makes good sense to use a part of one's savings toward one's retirement, an equal portion used in more adventurous investing will yield the knowledge to maximize that retirement nest egg, and perhaps retire earlier as well.

    Another way to compound is through dividend reinvestment in strong companies. Even without dividend reinvestment, a $10,000 stake in Johnson and Johnson purchased in 1970 would yield $20,000 in annual income today. Imagine what that would be if those dividends had been reinvested for the first 30 years!

  • Report this Comment On March 12, 2010, at 1:51 AM, KvHagedorn wrote:

    Time also makes one old. Oseola McCarty likely donated her nest egg because she was in her late eighties and probably in such poor health that she knew she could never really enjoy the fruits of her savings herself.

    While it makes good sense to use a part of one's savings toward one's retirement, an equal portion used in more adventurous investing will yield the knowledge to maximize that retirement nest egg, and perhaps retire earlier as well.

    Another way to compound is through dividend reinvestment in strong companies. Even without dividend reinvestment, a $10,000 stake in Johnson and Johnson purchased in 1970 would yield $20,000 in annual income today. Imagine what that would be if those dividends had been reinvested for the first 30 years!

  • Report this Comment On May 23, 2010, at 9:33 AM, getbo wrote:

    Ahhhh, but what is the value of the dollar in 40 years?

    Will it be worth even today's penny? 479,642 pennies in 2050 might buy you a nice leather jacket.

  • Report this Comment On June 12, 2010, at 7:41 AM, wazwaz101 wrote:

    my goal is to be successful at trading stocks, however i sense lots of pessimism here.

  • Report this Comment On June 24, 2010, at 4:23 PM, flailer777 wrote:

    i believe we should, generally speaking, read a "lots of pessimism here" as a sign of "caution" that smart and real investors have learned, prolly the "hard way".

    They question EVERYTHING. If the word meant anything anymore, i'd say they were applying "critical-thinking". (but the meaning of that word has been so diluted, and even polluted.

    just my two point seven cents.

    flailer inc

  • Report this Comment On July 01, 2010, at 2:20 PM, erniediaz1018 wrote:

    great article. kid friendly. i have started to teach my 8yr old about stock market savings. Success without a successor is Failure. I Pray we all do well with His guidance.

  • Report this Comment On September 10, 2010, at 5:37 PM, MFreader001 wrote:

    I have some stupid questions to ask: Who is going to earn all that money from the accrued compound interest?

    If we take a look at:

    we can see the following:

    1. There is no economy in the world that can earn the money, calculated by the formula FV=PV.(1+i)^n None of the economies of the most developed nations in the world can make such profit at present.

    2. This formula is exponential function of the time, which means that the rate of increase is increasing with the time. If you don't believe me draw its diagram. It means that if the accrued profit cannot be earned at present - there is no chance for it to be made in the future - ever. Hence, most of the accrued future value will be lost 'in time and space' and the remaining part will go straight into the pockets of the management board of the banks, the insurance companies and the financial consultants.

    3. The governments would not be able to guarantee the debt when it starts exceeding the GDP, and it is not even funny. So, what do they guarantee at present at all?!

    RE: The Big Short

    Is this something like that:


  • Report this Comment On February 04, 2011, at 6:13 AM, mkarlosgreen wrote:

    So, I've tried calculations to see how you came up with the "compelling table" and cannot seem to get it. The figure I came up with is $6593. Am I missing something?

  • Report this Comment On February 12, 2011, at 7:39 AM, jobspeak wrote:

    your annuity calulations are wrong

  • Report this Comment On February 12, 2011, at 7:43 AM, jobspeak wrote:

    $1,200 at 9% over 10 years = $21,072

    FV = (PV(1+i)^n -1)/i

    IF you can't math you cant invest

  • Report this Comment On February 19, 2011, at 6:03 PM, baekeland108 wrote:

    Hi JobSpeak,

    Your comment regarding: "If you can't math you can't invest." I am one of those people that have great difficulty with Math. You would surely call me an innumerate when it comes to Math.

    Nonetheless. I was a professor of Victorian Literature until a while back when I became handicapped. So I now hold the title "semi-retired." My lack of great expertise in the field of Math has not held me back in the least from investing as I have a great respect for Math and utilize my strong analytical skills to make up for my lack of Math skills. As I have said earlier, I would take my strong analytical skills combined with my crippled innumeracy any day of the week for my investing means. Take a Mathematician such as Lewis Carroll, famed author of "The Alice in Wonderland" books, I am sure he would probably have done very well in the Market. But in my case, I use my analytical skills combined with my innumeracy to turn Math into rather successful portfolios. I learned how to turn Math into an antalytical format from a rather famous teacher of Mathematics by the name of Paulos. He showed me how to take my analytical skills to make up for my innumeracy. For example he once poised this question to the class" How fast does your hair grow in miles per month." That one little question gave me an incredible respect for Mathematics and the ability to use my analytical skills in the field of Mathematics. Sorry for ranting, but I think that is an unfair statement: "If you can't math you can't invest." I am sure there are many people who are not very strong in mathematical skills and I just do not want those people to think that investing is not for them. Best

  • Report this Comment On February 25, 2011, at 4:35 PM, IsrealJ wrote:

    Thak you Baekeland108

  • Report this Comment On March 16, 2011, at 3:55 PM, OWu wrote:

    Actually I think it was Ben Franklin not Einstein.

    Good story:

  • Report this Comment On March 20, 2011, at 5:32 PM, csweetmocha7 wrote:

    Wow now I know how to become a millionaire this is a blessing to be able to have access to this informaiton!

  • Report this Comment On March 29, 2011, at 9:26 AM, hdfinance wrote:

    Dear MFreader001:

    The compounding equation is a mathematical relation, nothing more, nothing less. How you choose to interpret its relevance in the world markets is purely your choice. However, your opening argument is flawed at the core; "i" is the ever-changing, balancing variable. Theoretically, it could be zero, or even negative. That is the beauty of world markets and the balance of trading since before man started trading meat for wheat. Fellow Fools: Continue to seek sound guidance and don't fear for a "good" trade.

  • Report this Comment On May 17, 2011, at 9:03 PM, ljwaks wrote:

    I thank baekeland108 for his astute remarks on analytical skills and numeracy. He is completely correct: today a computer can rapidly solve any equation you give it. And every equation you want can be found easily with a quick google search. On the other hand, knowing what equation you actually want involves a bit of brain power that no computer can supply.

    He thanks Professor Paulos for his insight. This ingenious scholar, teacher and author is a Professor at Temple University. As his long time colleague I assure you that he didn't generate esoteric knowledge and keep it for himself - he has devoted himself to teaching great masses of people -- including our wonderful Temple students -- to think.

  • Report this Comment On November 10, 2011, at 9:42 PM, cronyjabrony wrote:

    why not just use the rule of 72. Divide an interest rate into 72 and that shows how long before your money doubles. It is something that Primerica teaches to all their clients.

  • Report this Comment On November 12, 2011, at 11:24 PM, bearbait07 wrote:


    In what unit of time does the rule of 72 calculate --days, weeks, years?

  • Report this Comment On December 10, 2011, at 11:22 PM, daknyc wrote:

    Maybe I'm missing something, but how can you assume a 0% federal and 0& state tax rate? Who pays 0%?

  • Report this Comment On January 13, 2012, at 7:14 PM, bigjay455 wrote:

    hmmmm I think Ill stay with classic and antique cars

  • Report this Comment On January 14, 2012, at 3:46 PM, bratified wrote:

    For whatever reason math and I have always been friends. I once passed a test by 75%, not impressive at all (I know). But I literally didn't know one answer, so I was okay with 75. It was a test on a topic I had never studied and had about 150 questions. I saw pretty quickly I'd fail if it was based on my knowledge - but it hit me that I could use a rotating a, b, c, d sequence that would likely get me the most right answers. Well, I'm saying this because I have not followed the stock market at all (kind of like that subject I was tested on). But now I want to. I'm wondering whether any of you when you were just starting out read a book or an article that you found to be particularly enlightening.

  • Report this Comment On January 15, 2012, at 3:08 PM, MrBlomberg wrote:

    I'm new to investing and I've got some questions about it all.

    I would like to add that I live in Sweden, dropped out of school, age 17 years old and very intrested in making a so called ''carreer'' in the stock market.

    My income is very low, but I've thought about investing much as possible the next year ( when I'm 18, which means it wont be very much- a maximum of 4,000 - 6,000$ )

    Here are some questions I would like to have answered..

    1. What should I start investing in with this low capital ? Mutual funds ? Stocks ? Real Estate ? etc.

    2. How do I notice if a company is going to pay me well ? ( How to decide if the company is going to pay me well? - How do I spot these great companies ? )

    3. Right now I just see the chart going up and down at diffent times during the days - the numbers on the side and the percent of the stock dosn't tell me anything.. explain please.

    4. Is the there diffrent in working with stocks from Sweden instead of the USA or England, if YES what kind ?

    * When saying '' starting stock market carreer '' I mean making alot of money quick, I'm looking to get rich of this and live like the famous people, driving nice cars, owning property in diffrent cuntries & just have alot of fun with it.

    I would appriciate a answers as soon as possible with links and such to maybe a nice guide to help me start of this journey, i've read a little here but the english is a bit difficult for me to understand so please write understandble.

    ( If possible, please add a e-mail that we could talk over, also post a PM to my account here on Mootly fool if you could )

  • Report this Comment On January 15, 2012, at 3:25 PM, MrBlomberg wrote:

    Oh I got the investments numbers wrong, I'm talking about 400-600$, I want to start as soon I hit 18 and continue further on as I get more money to invest thru' a job and from my current stocks

  • Report this Comment On January 15, 2012, at 3:57 PM, crca99 wrote:

    MrBlomberg, I recommend you start with a dummy portfolio. Yahoo finance will let you create one or several, or do it on Choose the investments you think will rise, write down reasons they were chosen, and follow them until you are ready to invest real $$. Your logic and market results may surprise you. Oh, and keep reading. Good luck.

  • Report this Comment On January 15, 2012, at 8:05 PM, MrBlomberg wrote:

    Hey thanks for the tip, I'm looking over some stocks right now to start my plastic portfolio!

    I've decided to study the market for 6-12 months from now to load in some experience, but before I start this dummy portfolio I need answers on my questions..btw- a dummy portfolio cant contain indexes (Large-cap companies), wouldn't it take to much time for them to make any progress ?

    1. I will have a low starting capital ( around 1,500$ if I'm lucky ) , I'm asking what kind of stocks to invest in ? Should I go for a whole index like DOW or S&P 500, or maybe start of with buying shares within the companies like ex. Microsoft or McDonalds

    2. How do I notice if a company is going to pay me well ? ( How to decide if the company is going to pay me well? - How do I spot these great companies ? I have no idea what ex the ''average'' earning for a company is and how much I get out of it.

    3. I notice these numbers and percent on the side of the stocks, what will they tell me ?

    I don't know how to use them to count in MY earning, and how to use them for working out the company earning.

  • Report this Comment On January 25, 2012, at 7:54 PM, paul8368 wrote:

    Compound interest is always going to make you money just the same as the banks use it to take as much money from you as possible when you borrow money.

    Whether the calculation is right or wrong you can't deny compounding will always deliver the goods.

  • Report this Comment On March 07, 2012, at 4:43 AM, KeenTrader wrote:

    A good ethic:

    "Use the power of compounding interest, and if you are an active investor, cut your expectations in half."

  • Report this Comment On April 07, 2012, at 3:43 PM, jpfrogbottom wrote:

    Ok..this old FOOL will tell you his tale. Then, a 35 yr old guy changing career fields. New Start, 0 savings

    May 1987 began investing 10% of my meager 1st yr salary of $14,522 (1452 dollars). Kept it up until the ROTH accounts became available, then cut it to 8% in my 401K and tried to fully fund ROTH's for myself & the wife.

    Just retired, $393,00 in that 401-K

    a bit over $100,000 in my ROTH account.

    Wife still working has over 100K in her 401-K as well

    Salary went up considerably in the intervening 25 yrs

    Today: both 60 I'm retired. 13 yr old home PAID

    Cars PAID... No Debts... and over $500K in savings

    Life is pretty good on the planet - Thanks -

  • Report this Comment On April 16, 2012, at 4:24 PM, copperdragon wrote:

    bearbait - it is in years if you use annual interest rate..

    for example

    $10K at 6% annual will double in 12 years (72/6)

  • Report this Comment On April 29, 2012, at 9:34 PM, Lucy2007 wrote:

    Hi guys,

    I've been investing for a long time and have just decided to write down my daily thoughts about investing (for myself, although blogs do seem to be popular nowadays). This is day 1 of writing down my thoughts and I decided to go back through your 13 steps and do all your calculations for your 13 steps.

    In redoing the calculations, I find your second table a little deceiving (although the point you are making is exactly correct).

    All your calculations were something like:

    Invest on January 1 (I'm just making up a date here and following your logic) and get interest the next year on January 1. However, for your second table, you are Investing on January 1 and getting interest on your investment from the last January 1, plus interest on your new $1200 January 1 investment. I don't think that is correct (you can't make an annual return on day 1 of your investment in this example).

    I think your numbers should be:

    Savings Account (0.5%) Money Market Fund (2%) Certificate of Deposit (5%) Stock Market (9%)

    Initial investment $1,200 $1,200 $1,200 $1,200

    5 years $7,291 $7,570 $8,162 $9,028

    10 years $13,535 $14,602 $17,048 $21,072

    15 years $19,937 $22,367 $28,389 $39,604

    25 years $33,230 $40,405 $61,336 $111,989

    30 years $40,130 $50,855 $84,913 $179,490

    35 years $47,203 $62,393 $115,004 $283,350

    40 years $54,456 $75,132 $153,408 $443,150

  • Report this Comment On May 25, 2012, at 2:02 PM, lewloG wrote:

    Most people, individuals, who invest on their own have NO IDEA of what they are doing. I have watched individuals for 53 years. Only a rare few pay much attention. Brokers can earn their commissions as long as they stdy and put client interest high on their list of jobs.

    Lew Gordon

  • Report this Comment On June 25, 2012, at 12:40 PM, notsofoolish0909 wrote:

    wow! great stuff. this is amazing, thank God for stocks.

  • Report this Comment On August 14, 2012, at 10:47 PM, NickD wrote:

    alright i have a good problem to have 19years old living with my parents i have 40k in the bank.i can save 2000-2500 a month i love this whole 9% return thing but i have no idea what stocks r returning 9% i been thinking about just evenly putting it in these stocks WM JNJ GIS PG MCD PEP MMM CL YUM HSY WMT AAPL NKE KO i like to have more proven companies but i also like DDD cmon 3-d printers in every home 5-15years. i want to invest all 40k and add 2k a month some1 give me some guidance

  • Report this Comment On August 26, 2012, at 8:30 PM, need2invest101 wrote:

    I'm new at this, my question is $1200 invested in what? i thought all investments performed differently.

  • Report this Comment On November 13, 2012, at 5:04 PM, Jedward21 wrote:

    Would it be wise to have a paid job? Part-time, full-time? What do I need so I can accomplish this?

  • Report this Comment On November 17, 2012, at 5:13 PM, SparkieJim2 wrote:

    Where can i get solid currently correct information on reinvesting monies i receive from selling stocks and bonds and not incure any liabilities concerning being taxed for doing so?

  • Report this Comment On January 01, 2013, at 5:31 PM, BillRamthun wrote:

    I joined TMF in 2009 and somehow missed "The 13 Steps To Investing Foolishly" and am reading them now.

    So what happened to year "20" in the table above? I noticed it was missing while creating a table mimicking the results listed in the article. I also found the same inconsistency noted by Lucy2007 in the Compound Interest with annual contribution table.

    So many stocks, so little time...

  • Report this Comment On February 09, 2013, at 3:43 PM, 1837rebel wrote:

    I'm new to this too, like many others on here. Inherited a decent chunk of money a couple of years ago and would like to put it to work for me. I've heard good things about Motley Fool and it seems to be worth a try, but I plan to start slowly - as the old adage has it, never invest more than you're willing to lose.

  • Report this Comment On February 15, 2013, at 12:18 AM, Plosko wrote:

    I am brand new to this so am a blank slate beginning to learn

  • Report this Comment On March 01, 2013, at 4:23 PM, Telsaar wrote:

    For the Beginners:

    Before you invest Get your financial life in order, read Dave Ramsey's Complete Guide to Money.

    Then Read, Larry Burkett's Investing for the Future. Now Mr Burkett is not into individual stocks so much but he provides a good basis for investing.

    Then read Peter Lynch's Beating the Street.

    And Finally read, National Association of Investors Corporation's, Investor Manual. This publication concretely teaches you how to evaluate stock (or rather the company) for fundamentals. Join an NAIC investment club if you can. A good club will have a round table of stock evaluations that would be a great experience for a novice investor. As an alternative, or adjunction reak Beardstown Ladies Common-Sense Investment Guide which basically repeats the NAIC manual. Now the Ladies had trouble with their math but in the end they did pretty well. You'll have to search them on the internet.

    What I hope you can accomplish by this "home work" is to make sure your life's finances are inorder to take on stock market risk and that you can get a good understanding what they are. And then learn to evaluate a company to mitigate the risk by picking a great company that demonstrates great fundamentals. for instance, you should not be investing in stock outside a 401K type retirement investment unless your credit is zerowed out and you have an emergency fund in place. And then it should be a ETF or Mutual fund.

    I think getting into stocks slowly and making sure you understand stock investing and the risk is great wisdom.

    Also, I'm sure there are a ton of even better books to learn more fine details about picking stocks. I'd just stay away from "technical" or "day" trading.

    Just pardon my essay if you have other opinions.

  • Report this Comment On March 25, 2013, at 2:36 PM, sgperformer wrote:

    I'm unclear - how does compound interest work when holding stocks. I understand the concept when talking about reinvesting dividends, but in the case of simply holding stocks, or non - dividend paying mutual funds, how does the investment compound?

  • Report this Comment On June 03, 2013, at 12:25 AM, Bodhicom wrote:

    It doesn't. It's an average return rate. Stick to index funds like the S&P 500.

  • Report this Comment On June 05, 2013, at 4:55 PM, Bodhicom wrote:

    PS - The value of your portfolio can go down, and up...just leave it alone. After 20 years, you should fair pretty well with a good average return overall. Time is your friend!

  • Report this Comment On October 12, 2013, at 8:02 AM, RedLoki wrote:

    Become a millionaire in 22 steps, guaranteed!

    Step1. Take a dollar and place it on the table before you.

    Step2. Place another dollar next to the first. This is your capital, $2 and you have completed your first double.

    Step3-21. Double your capital 20 more times by any legal and ethical means. 2 to the 20th power: $1,048,576.

  • Report this Comment On October 17, 2013, at 4:35 PM, Aojrocks wrote:

    I stumbled upon this website and am awed with the wealth of information in it, more so on the message boards. I only started investing in 401K/Roth IRAs 3 years ago and know nothing of stocks or bond investing.

    I dont have enough or much to get started on, but am willing to start regardless of how small! I would like to know more - some questions asked here by ' MrBlomberg' are the same ones that I have - it would be nice to have someone answer them or give us 'Fools' a clue on how to get started! Isn;t that what forums are for? To get questions answered?

    Some say read. This will not work if you have a family, work two jobs and go to school! Sometimes, getting answers to ones questions is the quickest way to get learn and get started!

    Regardless of if the data/calculation on the table is wrong/or a little off - the bottom line is that compounding interest shows HIGH EARNING at the end of a period (for most thats all they care about).

    Bravo ' jpfrogbottom' I like reading your piece, very inspiring.

    Please if someone can start answering these questions, to get us 'fools' going that would be great indeed!!

    Cheers :)

  • Report this Comment On December 06, 2013, at 10:30 AM, bodydashi wrote:

    this is not the way to make money.......

  • Report this Comment On December 21, 2013, at 11:55 AM, garethbarry wrote:

    Wow now I know how to become a millionaire this is a blessing to be able to have access to this informaiton!

  • Report this Comment On December 30, 2013, at 3:34 AM, TEXASROSES wrote:



  • Report this Comment On January 08, 2014, at 4:34 PM, dividend123 wrote:

    I am an older person. I started trying my hands at investing in 1990. I started with 4 stocks. I learned about and joined NAIC (National Association of Investors Corporation) along the way . By the way I was looking for information on Investments when I came across a little book titled "how to get rich on $10 per month". It was about some elderly ladies pooled their investments to buy stocks "directly" from the companies.I started with, Exxon-mobile, Texaco, Home Depot, Fannie mae. $250 were put in each of these Companies. As time went by increased my investment till i had 100 shares in each of the companies. Now I'm invested in over 20 companies. I was building a house, studying for my degree and raising two kids as a single father. Now my portfolio is worth well north of $500k, debt fee, and still invest a few dollars now and then. I'm not a math wiz either. If i can do it ,so can you. Sorry for the preaching guys.

  • Report this Comment On January 14, 2014, at 10:17 AM, sexonthebeach wrote:

    Does this mean I need to buy stocks that will give me a 9% return over x years? How do I get the compound interesting?

  • Report this Comment On January 19, 2014, at 1:15 AM, foolishponte wrote:

    We turned 500 bucks into 40k with (PHOT) in the M.M.I. Market and it only took us 4 months bought it at .004 a share and sold at .44 a share Happy Investing! And Thank You fools for getting my feet wet!

  • Report this Comment On January 21, 2014, at 5:44 PM, BLUESCITYLEON wrote:

    Use any formula you want. If you don't develop a plan you will die poor. Even people with little or no income can die with money in the bank. If you pick a few stocks and read MF, hold the winners and add to them. Do that while you are doing your equations.

    Don't put all your money in one stock. Don't run up Credit except to buy a home. Live within your means. Follow the 13 steps. Move slow and steady a piece at a time. Read MF. Don't over think it. Take a position in a stock at a time and read MF....

    Getting rich quick is not a blessing. Proverb.

  • Report this Comment On February 03, 2014, at 10:49 AM, dp23peace wrote:

    Regarding the comment above; "What I hope you can accomplish by this "home work" is to make sure your life's finances are inorder to take on stock market risk and that you can get a good understanding what they are. And then learn to evaluate a company to mitigate the risk by picking a great company that demonstrates great fundamentals. for instance, you should not be investing in stock outside a 401K type retirement investment unless your credit is zerowed out and you have an emergency fund in place.".

    I agreed with that and had 0 debt, aside from mortgage 6 years ago. Then, had super-preemy twins, wife had to stay home with them, was laid off 3 years ago, went back to school to complete my bachelor's, and needed to use credit to stay afloat. Now, I have $50k in loan, car and credit debt, and $33k in my Foolish Fidelity Retirement account with a great rate of return, and $10k in a new 401k with my new employer.

    Pulling out the investments to pay debt sounds good, but taxes make it less desirable. I just hate paying interest!

    Any advice?

  • Report this Comment On February 10, 2014, at 9:39 PM, Lwise wrote:

    I'm brand new to investing and find this whole thing slightly confusing. I currently have $2,000 in a regular savings account, hoping to save for long-term. Would I be better off investing it in stocks, opening a CD, or what?

    I'm a couple paychecks away from being 100% debt free, not even a car loan, while still being able to maintain that $2,000 in long-term savings.

    I'd like to get started investing, but where do I start?

  • Report this Comment On February 10, 2014, at 9:56 PM, NickD wrote:

    Read a lot.

  • Report this Comment On February 21, 2014, at 4:29 AM, Teejay wrote:

    I am aging (old woman) and invested years ago in a company called "Futuristic Foods Incorporated." Company was sued in NY and I loss all my money. I was 20 then. I became scared and did nothing more.

    But I am new at this game and want to invest every extra $10, 20, or 100, because I have custody and supporting grandchildren. I would like to know that even if I die poor I leave something to these kids who were traumatized and abused before I took custody. Help me please as this is so much information?

  • Report this Comment On February 24, 2014, at 6:56 PM, tjwrunhiker wrote:

    It was Albert Einstein who said the most powerful force in the universe is that of compound interest.

  • Report this Comment On May 11, 2014, at 12:40 PM, Hotstock1 wrote:

    (1) To Mr. Bloomberg and others interested in the stock market: Enroll in two investment classes at your nearest school that has a business department and offers a bachelor's degree (i.e., not a community college). Learn to fish by taking a basic investment course taught there that teaches what stocks and bonds are. Then take a second course called portfolio management. The information gleaned from those two courses, taken in two quarters/semesters (10 months?) will serve you for the rest of your life. Jim Cramer (of Mad Money) may have questionable stock ideas, but his comments about portfolio management are spot on. (2) Regarding compound interest, Baron Von Rothschild, a 16th century French banker, called it the eighth wonder of the world; Albert Einstein called it the greatest invention of man. (3) Now, in mid-2014, the concern is high frequency trading (HFT). Ignore it. Be an investor, not a trader. Think at least a year and a day for your investments for tax purposes. A dated Wall Street adage but still relevant: "If the idea is right, don't worry about the quarters and eighths." On a long-term basis, dividends represent 40% of total return. Good investing.

  • Report this Comment On June 09, 2014, at 10:11 PM, KimCunn wrote:

    Thank you! I don't want to die poor. Ready to get started. How do I use funds I have in a Tiaa-Cref fund?

  • Report this Comment On June 26, 2014, at 11:46 AM, abigailpollakfl wrote:

    Those tables are pretty awesome, great ideas.

  • Report this Comment On July 05, 2014, at 8:30 PM, Prospperus wrote:

    But, what would happen is there is great inflation, or even hiperinflation, how would those tables above be sitill valuable?

  • Report this Comment On July 14, 2014, at 8:04 AM, DavidDavis wrote:

    Good advices, but really it could be another turn

  • Report this Comment On July 21, 2014, at 9:18 AM, ooeebaby wrote:

    I will turn 60 in a few months. My first husband died 9 years ago & left me with a portfolio of over $400k. I knew nothing about the market, so I let everything sit where it was through 2010. Investment dropped over $100k. I then moved what money was left into an Annuity, so that I would not lose any more money.

    I have remarried & my husband just got serious about his retirement portfolio. However, we haven't made it to $100k yet.

    We have anywhere from $250-$600 monthly that we could invest; however, I know nothing about how to get started.

    I've been reading these post, but I'm still not getting it.

    At my age, should I just forget about investing? I mean, we have about 3-5 years before he retires and I do not work.

    We have credit cards we are trying to pay off. We took the Dave Ramsey Financial Peace Univ., learned a lot. Now trying to pay down debt. Should I wait until debt paid off before we invest? I just don't know & would appreciate advice.

  • Report this Comment On September 22, 2014, at 1:12 PM, Lore wrote:

    Burton Malkiel also attributes the compound interest quote to Einstein, and if anyone is assembling a reading list they'd be insane not to include Malkiel's "A Random Walk Down Wall Street" - the "Elements of Style" for learning investors. He's been updating it for 40 years.

  • Report this Comment On September 27, 2014, at 5:15 PM, TSDavis75 wrote:

    The problem I find is if you are not at least making 100% a year in the market you are wasting your time.

  • Report this Comment On October 12, 2014, at 5:28 AM, amadhatter53 wrote:

    I can't find a CD of any kind that pays 5%. Doesn't matter the term, the investment, the type of financial institution; the highest I've found in the nation was less than 3%. Where are CDs paying 5%?

    Additionally, is it logical to list a rate of 9% in the stock market over 40 years - or even 4? Sure, it can return 9% or a lot more. But is it all that likely to see a positive return that high year after year? In all likelihood won't some money be lost during a few, some, or many many years over a 40 year span? Sure, one can utilize low risk investment products, but those are always going to be lower capitalization as well - probably not 9%. If a compounded 9% was guaranteed for 40 years, wouldn't everyone put some money in that?

    And the question: Where can I put my cash so it will earn compounded interest at a decent rate? Saving accounts pay such low rates that ten years of return wouldn't buy you breakfast.

    I'd appreciate someone telling me where I can earn a decent return rate. For reference, let's say we're looking at an initial minimum investment of $25,000 with an annual contribution of $1,500, for a term of no less than 10 years. Furthermore, I am unable to work due to a disability so I am not employed, but I am still able to earn a modest annual amount with some creativity.

    Thank you.

  • Report this Comment On November 13, 2014, at 7:45 AM, OlderFool wrote:

    I'm 63 years old. Never been one to invest. Know absolutely nothing, living pay check to pay check, but what I consider comfortable. I don't have time on my side to wait 40 years for my investment to grow. I need a quick fix or am I just whistling Dixie out my behind.

  • Report this Comment On December 03, 2014, at 9:08 PM, mobukx wrote:

    What I got out of all this is even with smart investing you aint gettin rich quick. "Quick" being relative.

  • Report this Comment On December 17, 2014, at 7:45 PM, lstitallstrtnovr wrote:

    My father passed away in 2006 leaving me with about $500K with a brokerage company that shall remain nameless. When I went in and signed all the paperwork to transfer ownership the broker asked me if I was in it for the long haul to which I agreed just because that was what my father always taught us. I also explained to the broker that if money started to fly out the window I wanted everything moved to someplace safe so I would not lose everything. Long story short that isn't what happened I not knowing anything about investing decided to call him to see if he would tell me how things were going with my investments after watching the morning news about the huge drops in the market. He tells me he has bad news that I took a hit of over $300k in less than 2 weeks. I asked for an explanation as to why my investments hadn't been moved or why I hadn't received a call from him regarding the way the market was going. My girlfriend used the same firm in a different city and when the market took its 1st big drop her manager called her and suggested she pull her money out put it into something safe and wait out the ride, which she did and lost only 10K. The biggest lesson I learned was that if you have someone investing our money for you, you need to have them sign a fiduciary agreement, Hopefully this is a close enough definition: A fiduciary agreement means that person handling your money must treat it as if it was his/her own and are responsible for your loss if reasonable and prudent decisions were failed to be made on your behalf to save your money. I am now fifty my husband is 57 and we were pretty much wiped out. Have about 70K and not sure what to do with it. So we were wondering if The MF does any beginners web casts explaining how to invest, explaining the market. I read above to go to several different web sites that no longer exist and we live in a very rural area so going to school is out of the question. He holds an outside job and we co own a small pub & grill.

    Any suggestions would be great if anyone knows of a firm that will sign a fiduciary agreement also.

    Thank you from a very worried former investor.

  • Report this Comment On January 14, 2015, at 8:26 AM, Pedernal wrote:

    I am about 7 yrs from retirement age.

    Where would 100k make the most money

    in this time frame.

    Any recommendations?

    Also I have 3 different 401 ks from previous employers. What would your recommendation be on



  • Report this Comment On February 02, 2015, at 8:11 AM, WickedWillie wrote:

    If you’re stranded on a desert island slap-bang in the middle of the Pacific Ocean there’s no need to plan for your retirement. That’s the good thing about it.

  • Report this Comment On February 15, 2015, at 11:19 AM, Rebeccasilver wrote:

    What if the stocks go down? Then you lose everything.

  • Report this Comment On March 17, 2015, at 6:43 PM, Al9Mac wrote:

    For all the people who talked about losing your shirt, you needed to find out what gov agency regulates, and what organization insures your funds. For example:

    FDIC insures banks, SIPC insures money with a stock broker.

    SEC regulates brokers, and companies we invest in.

    FINRA regulates the overall financial industry.

    All of them have guidance about your recourse if you lost your shirt and think your financial advisor let you down. Some have info about complaints to the various places & how the complaints were resolved, so that you can select a place that not a lot of people complain about, and when there is a complaint, it is resolved harmoniously.

    There are lots of crooked places out there, eager to steal your money. Figuring out which places can be trusted, is called due diligence. I do that with what bank or credit union to put money in, which broker, which place I pay charity to, so it goes to the good cause and not the crooks.

    Interest rates and stock market values go up and down. Price of gasoline goes up and down. We have stock market “corrections” or “crashes.” I try to protect my stock from one of those, using “stop loss” orders.

    When we owe money, the interest there is often much more than we can get from any investment, so pay down the debts, then when debt-free, consider investments. Perhaps we can reduce our cost of living.

    There’s lots of books on investment – we can start with the Dummies books, which teach market fundamentals, but nowadays a lot of the market is driven by government printing money, Wall Street spending it in unregulated markets, the housing scandal bubble not totally fixed, and lots more financial bubbles coming along.

    Some people here need a Q+A forum. What’s a reasonable expectation, what’s not?

  • Report this Comment On May 29, 2015, at 8:12 PM, dedeburn wrote:

    My calculations, after adjusting inflation to it's average of 3% and inputting the gains tax of 25% is a 25 year contribution that is worth $319,074.

    Not quite a millionaire but still beneficial after 35 years of investing 5k (deposited monthly).

  • Report this Comment On August 07, 2015, at 7:54 PM, rmartinsf wrote:

    @ amadhatter53 - the stock market may not go up 9% in any given year, but, overall, the market does go up.

    The Washington Post has a great illustration:

    This website also shows an interesting perspective on the average total return/year of the DJIA (Dow Jones Industrial Average)

    It says "Throughout stock market history, the average yearly return for periods of 25 years or longer has been around 9-10%. Here we mean total return -- i.e., including dividends."

    As a personal investor, the key for me is to "buy low, sell high". You don't actually lose money unless you sell the stock for less than you bought it for.

  • Report this Comment On August 10, 2015, at 4:08 PM, Hendrickson71 wrote:

    All this thing sounds great, but it's not a huge reason to start investing. I mean. yes, I can become a millionaire in 40 years but will I really need this money in 40 years? I just will be too old to use them in a way I want to.

    I want to do it faster, I can spend more time in studying and working in this field. But I need some more reasons. How much money successful investor can make from $10k. in 10 years?(by successful investor I mean not Warren Buffet, but average pro on market)

  • Report this Comment On August 30, 2015, at 10:28 PM, adeneve wrote:

    I agree with many of the comments that the tables shown above may be difficult to calculate.

    I did it by hand in order to compare it to the above tables. I am not an expert in math but only basic arithmetic skills are needed. If someone finds errors in my charts please explain why it is wrong. Thanks.

    Year Intrst Current Yr Invest Prior Yr Bal Total

    Table A

    Year 1 day 1 0 $1200 0 $1200

    Year 1 day 365 108 (1200 x.09) $1308

    Year 2 day 1 0 $1200 $1308 $2508

    Year 2 day 365 225.72(2508 x .09) $2733.72

    Year 3 day 1 0 $1200 $2733.72 $3933.72

    Year 3 day 365 $354.04 (3933.72 x .09) $4287.76

    Year 4 day 1 0 $1200 $4287.76 $5487.76

    Year 4 day365 $493.90 (5487.76 x .09) $5981.67

    Year 5 day 1 0 $1200 $5981.67 $7181.66

    Year 5 day 365 $646.35 (7181.66 x .09) $7828.01

    In other words if u invest ONLY $1200 on Year 1 Day 1 and invest an additional $1200 for the following 4 years u will have a total of only $7828.01 on the last day of the 5th year. This is with annual compounding;with monthly compounding it would be slightly higher.

    Table B

    Year 1 day 1 0 $1200 $1200 $2400

    Year 1 day 365 $216 (2400 x .09) $2614

    Year 2 day 1 0 $1200 $2614 $3816

    Year 2 day 365 343.44 (3816 x .09) $4159.44

    Year 3 day 1 0 $1200 $4159.44 $5359.44

    Year 3 day 365 $482.35 (5359.44 x .09) $5841.79

    Year 4 day 1 0 $1200 $5841.79 $7041.79

    Year 4 day365 $633.76 (7041.79 x .09) $7675.55

    Year 5 day 1 0 $1200 $7675.55 $8875.55

    Year 5 day 365 $798.80(8875.55 x .09) $9674.35 x.09)

    So if I start with 1200 plus invest an additional 1200 on year 1 day 1 and every year thereafter I get the $9674. that is listed in the chart but that is not what is in the above story.

    If I am wrong please explain in detail why. Thanks

  • Report this Comment On October 20, 2015, at 5:25 PM, ryliu wrote:

    Fed/State tax eats up close to 1/3 of that return. To get a realistic 9% annual return, you need to achieve around 13 or 14% return before tax. That is hard.

    Only in an 401K or IRA account (pre-tax) does above argument apply.

  • Report this Comment On November 17, 2015, at 2:40 PM, DEEZNUTSYOLO wrote:


  • Report this Comment On November 17, 2015, at 2:42 PM, DEEZNUTSYOLO wrote:


  • Report this Comment On December 02, 2015, at 9:31 PM, ptfarre2015 wrote:

    Hey, Staff at Fool, your tools are not working.

    Here I have just signed up and started reading and none of your calculators work.

    What gives?

    This tool got an error message:

    So did the one before it.

    Not a promising start.

  • Report this Comment On December 17, 2015, at 2:03 PM, TMFKris wrote:

    @ptfarre2015: Here is our calculator page.

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