<THE FOOLISH FOUR>

Compounding, Once More
by Robert Sheard

LEXINGTON, KY. (August 25, 1998) -- In yesterday's column, I said my farewell as an official Fool, so now I have the rest of the week to reminisce about some of my favorite topics and issues before I take my seat in the auditorium. And without a moment's hesitation, my attention turns to the amazing power of time and compounded growth.

Even after working with this issue for nearly four years, it still puts me in awe. Let's look at the simple facts. If a young investor starts working at age 20 and starts a Roth IRA, putting away the maximum contribution of $2,000 each year, the total amount he or she will amass 40 years later is staggering.

At 11% a year (the long-term return for the Standard & Poor's 500 Index), that would grow to just under $1.3 million! Bump that up to the long-term return for the High-Yield 10 (15.52% over the past three decades) and the value soars to almost $4.8 million. And if one averages 19.69% (the UV4 return over the last 30 years)? A grand total of more than $16 million.

Now, of course 40 years of inflation will reduce that spending power quite a bit. If inflation eats away an average of four percent a year over the next four decades, that leaves $4 million in today's dollars. And while $4 million isn't nearly as impressive as $16 million, it's not bad for saving only $167 a month. And I've yet to meet someone who couldn't retire comfortably today on $4 million in tax-free cash!

The issue is simply time. If you have the time and the discipline to save regularly, you can meet your financial goals. No one can make you save that 10% of your paycheck and invest it for your future. No one can make you get started. But believe me, the power of time and compounded growth is the most important lesson I've drawn from my time here at the Fool. Make it work for you, too.

Current Dow Order | 1998 Dow Returns

[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]

08/25/98 Close
Stock  Change   Last 
 -------------------- 
 UK   -  11/16  45.88 
 IP   +   1/4   42.94 
 MO   -   1/4   44.00 
 EK   +   3/8   85.50 
  
 
 
                    Day   Month    Year 
         FOOL-4   -0.21%  -1.26%  12.54% 
         DJIA     +0.42%  -3.16%   8.78% 
         S&P 500  +0.43%  -2.49%  12.61% 
         NASDAQ   +0.39%  -3.98%  14.49% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  206 Eastman Ko    60.56     85.50    41.18% 
  12/31/97  291 Union Carb    42.94     45.88     6.84% 
  12/31/97  289 Int'l Pape    43.13     42.94    -0.43% 
  12/31/97  276 Philip Mor    45.25     44.00    -2.76% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  206 Eastman Ko 12475.88  17613.00  $5137.13 
  12/31/97  291 Union Carb 12494.81  13349.63   $854.81 
  12/31/97  289 Int'l Pape 12463.13  12408.94   -$54.19 
  12/31/97  276 Philip Mor 12489.00  12144.00  -$345.00 
  
  
                              CASH    $754.73 
                             TOTAL  $56270.29