Home /
Money Blog
Growing Wealth Over Time
Note: You can use any financial calculator to do this problem, but if you want the BEST, you can
get our
10bii
Financial Calculator for iOS, Android, Mac, and Windows!
Photo by rawpixel.com from Pexels
THE SCENARIO
Last week I was listening to a podcast about money, where the host was talking about an investor who'd built a fortune of $700 thousand in 1988 to $10 million in 2016 (numbers changed for anonymity's sake). The podcaster was comparing the investor's return with what it would have been if he'd just invested his money into the S&P 500 instead, but that's not the point of this post.
The question: What was the investor's average annualized return on his original $700 thousand over those decades? Assume monthly compounding, and assume that the values given are for January 1st of both years.
THE SOLUTION
This one's pretty straightforward.
The only thing we really need to figure out before getting started is how many months are involved. 2016 - 1988 = 28 years were required for the money to grow like it did. 28 years is 28 x 12 = 336 months. Now we're ready to go.
First things first, make sure the calculator is using 12 Payments per Year.
N: 336 (28 years is 336 months)
I/YR: (This is what I'm trying to find)
PV: -700,000 (The investor originally had $700K)
PMT: 0 (No money flowed into or out of the 'wealth account' during the decades in question)
FV: 10,000,000 (The investor ended with $10M)
The investor's average annualized return, compounded monthly, was 9.54%.
What do you think? Did the investor do well to grow his fortune from under a million to ten million in a bit less than three decades? Do you think you could do the same, or even better? How would you do that? Let us know in the comments!
