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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Money chimp

Posted by Muthu on October 2, 2015

Today I stumbled upon the website www.moneychimp.com.

I found the same too be good.

It has US stock market (S&P 500) data from 1871; for the last 144 years.

I used the calculator and calculated the returns for the period 1’st January 1871 to 31’st December 2014.

During the last 144 years; the US stock markets have provided an annualised return of 9.11%

If your great grandfather has invested $1 in 1871, it’s value is $281,748 in 2014. A 9.11% CAGR has multiplied wealth by 2.81 lakh times over 144 years.

During the same period, the annualised inflation was 2.06%.

So over 2 centuries, stocks have provided a real rate of return of 7%.

Compounding works wonders over time. A small sum invested by a great grandfather can provide huge wealth to a great grandson. If it is that simple, why it is not happening?

The answer lies in this article.

70% of the families lose their wealth by second generation and a stunning 90% by third generation. After few generations, instead of compounding, the wealth simply disappears.

A small number of families who are lucky and are able to pass on the financial discipline across generations tend to stay very rich.

What is certain is you can make huge wealth out of equity during your life time.

What is uncertain is that whether that wealth would at least stay for few generations.

At the age of 60, donate not less than 10% of your wealth to charity.

This would ensure that your wealth served some purpose in addition to taking care of you till your end.

Teach your children and grandchildren about money and whole gamut of personal finance. This is the best you can do.

Then leave the rest to destiny.

2 Responses to “Money chimp”

  1. Kk said

    Very good one. Thanks!

  2. nrcagro said

    Very True. To be learned by younger generations

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