Surprise! You've Got $1.6 Million

He'd never even bought a lottery ticket, but one St. Louis man was recently treated to a $1.6 million surprise. The money was his all along -- he'd just forgotten all about it, until Missouri's investigation of forgotten financial accounts reconnected him with his long-lost cash. His lucky day is also a valuable lesson in the power of compounding investments.

You see, his account didn't have $1.6 million in it when it first slipped his mind. It grew to that size over time, invested in stocks or a stock fund. As this chart of compound annual returns between 1926 and 2008 shows, stocks are a powerful wealth-building tool:

Source: Ibbotson.

Over that lengthy period, a $1,000 investment would have grown to more than $9.5 million in small stocks, $2 million in large stocks -- or less than $100,000 in government bonds.

It's all in the timing
For all we know, the lucky guy in question could have started out with an account worth $3 million, and wound up with his considerably smaller sum because of bad investment choices.

But it's far more likely that his account grew over time. If he started with $100,000 and left the money there for 50 years, it would have averaged 5.7% in returns annually, which isn't all that impressive. If it grew at 10%, it would have needed only 29 years to reach his eventual payday. To hit $1.6 million in only 20 years, the rate would have had to be almost 15%. Playing with numbers and scenarios like this shows how important your growth rate is to your eventual return, and how powerful an ally time can be.

How we can accumulate $1.6 million
That 15% annual gain is far from impossible. The following companies' 20-year stock returns are either close to that figure, or even higher:

Data: Yahoo! Finance.

With a little work and patience, you could create a windfall of your own, whether you do so via bargain-priced stocks or a simple index fund. If you park $1,000 in an index fund today, you could leave one heck of a surprise for your grandkids in 50 years.