Miracle of Compound Interest

The miracle of compound interest allows you to earn interest on your original contribution and on the growing balance accumulated over the entire period invested. Give yourself a greater Rate of Return

TALE OF 2 SISTERS Our story follows two sisters, Cautious Sister A and Savvy Sister B, who both decide to invest their money over a 10 year period. Sister A refinances her home, saving $416/month and invests that money monthly. Sister B does a cash out refi of $50,000 and invests it. Who made more money? Sister “A” Invests $416 every month for 10 years. 10 years later Sister A’s total investment of $49,929 has yielded her a return on $73,856. Sister B’s total investment of $50,000 has yielded her a return of $105,188. Sister B has made $81,908 on her $23,280 investment. ************************** Sister “B” Increases mortgage payment by $194/month and invests a lump sum of $50,000

15 years later 20 years later ************************** Sister A continues to add $416 a month to her account. She has invested $74,880 over the past 15 years and has yielded a return of $137,264. Meanwhile, Sister B has left her $50,000 investment untouched and has yielded a return of $152,568. Sister A continues her investment strategy of adding $416 a month, and after 20 years, she has invested $99,840 and has made $229,233. Sister B has left her $50,000 untouched and her investment has grown to $221,291. So who made more money?

Sister B Now lets take a closer look at how Sister B made her cash out refinance work for her:  Sister B borrows $50,000 at 6% and invests it in an account that yields 8%.  Her payments increase by $300/month, but after taxes, she is only paying an extra $195/month. She makes these payments for 20 years.  At the end of the 20 years, her $50,000 investment has grown to $221,291, but the real kicker is that it has only cost her $46,800!  After 20 years, Sister B has made $174,481 whereas Sister B has made $129,393.

It takes money to make money. One can invest monthly over a lifetime and yield the growing benefit of compound interest. One can yield an even higher return by investing a large amount and letting it compound over a lifetime. How much equity can be harvested from your home for your future financial goals? Steve Calem, MBA, CMPS President Capital Funding Group Office: Direct: