The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (June 26, 1997) -- I don't have any pretensions about being compared to Einstein, but I understand that he was astounded by the power of compounding, and it's undoubtedly the single most powerful factor I rely on in investing, so I'd like to marvel at its magic again today. Those of you who can cite the wonders of compounding chapter and verse, forgive me. For the rest of you -- enjoy!

First, the assumptions I'll work from:

age - 25 years old
starting amount - $0
savings rate - $2,000 per year in a tax-deferred account
rate of return - range from 10% to 20% a year
length of test - 35 years

Albert starts from absolute zero at age 25 and decides to stash the IRA limit of $2,000 a year into a stock portfolio. That's all he's going to do, nothing in a taxable account, nothing fancy. Let's project Albert's retirement using three different average returns: 10%, 15%, and 20%.

If Albert's $2,000 a year compounds at roughly the rate of the overall stock market (10%) for the next 35 years, when he retires at age 60 he's going to have $596,254. He won't be on the Fortune 500 list, and after inflation his portfolio probably won't be enough to let him retire in complete ease, but I predict he'd be ahead of the vast majority of his contemporaries.

Let's assume Albert does a bit better with his investments, a return of 15%. With the same deposit of $2,000 a year, even starting from absolute zero, he would generate a retirement fund of more than $2 million! Now we're getting closer to Easy Street, even after 35 years of inflation.

Now the truly astounding possibility. If Albert generates returns of 20% a year (just under the return for the Foolish Four over the last 26 years), his retirement portfolio will have swelled to just over $7 million! All from a total investment of $70,000 spread out in $2,000 increments over 35 years. I don't know about you, but that never ceases to astonish me, and I've been writing about such topics every day for several years now. For a lousy $5.48 a day, you can retire with more than you probably dreamed possible. All it takes is time and discipline. Fool on, indeed!

Monthly Growth Screens
(Jan. 3 to present)
32.56%  Relative Strength  
18.13%  S&P 500 Index  
12.60%  Low Price/Sales  
 2.52%  Unemotional Growth  
-0.83%  Investing for Growth  
-7.90%  YPEG Potential  
-10.74%  EPS Plus RS  
-20.73%  Formula 90  

Annual Value Screens
(Jan. 1 to present)
18.70%  Dow Jones Ind Avg  
16.42%  Dogs of the Dow  
12.65%  Beating the S&P  
10.15%  Unemotional Value  
10.15%  Beating the Dow  
 7.74%  Dow Combo  
 3.02%  Foolish Four