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Intelligent investor should recognise the force of the axiom: compound interest is the most powerful force in the universe.
1. The reinvestment of returns over a long period has dramatic consequences.
Over 10 years, $100 invested at 1% rate of compound interest over a decade, would become $110. At compounding interest of 8% per year , $100 becomes $216 in a decade.
Over 40 years, the difference between a 1% return and one of 8% is the difference between $149 and $2,172,
2. Reinvested dividends play a large role in long-term capital accumulation.
While many amateur investor tend to be attracted by capital gains and attach little weight to dividends, reinvested dividends play a large role in long-term capital accumulation.
If your target 8% return were made up of 3% dividends and 5% capital gain, your $100 would accumulate to $2,172 within reinvested dividends and $704 without them over 40 years..
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