The Cost of Saving
This table shows the cumulative value of 26 bi-weekly deferral amount over 20, 25 and 30 years, assuming a compound annual rate of 8% and a federal tax rate of 25%.
Rule of 72 – Is a simple mathematical formula which will determine how long it can take for your money to double. Simply divide 72 by the rate of return.
Rate of Return/ 72
10% = 7.2 yrs | 8% = 9.0 yrs | 6% = 12 yrs | 4% = 18 yrs
The Arithmetic of Loss
The chart below illustrates what percentage an account would need to return over time to get back the initial investment after experiencing a loss.
Average Return vs Actual Return
If you invest $1,000 into an account:
And decline -50% in year 1
And then increase +50% in year 2
The Average return is -50 + 50/2 = 0/2 = 0
Is the ending value of the account $1,000?
No, the average return is Zero but the Actual return is -25%
If you invest $1,000 and it drops by -50%, you have $500.00
Now, if the account has a positive 50%, it would increase to $750.00
At the end of two years, even though the average return is zero percent, the account actually experienced a 25% decrease.
Actual and Average return will never equal one another anytime you factor in a negative number.
Currently Taxable Return
How much would you have to earn on a currently taxable return?