Is 10% really much better than 7%?
The keys to great investing are time and investment performance. While 7% and 10% seem pretty close, there's a huge divide between those returns. Small differences in annual performance have dramatic effects over time:
| Year | Value of $100 with 7% annual return | Value of $100 with 8.5% annual return | Value of $100 with 10% annual return |
| 5 | $140 | $150 | $161 |
| 15 | $276 | $340 | $418 |
| 25 | $543 | $769 | $1,083 |
| 35 | $1,068 | $1,738 | $2,810 |
Small differences in annual performance have huge effects on the total return, where an extra 1.5% annual return provides more than 60% more money over time. It's clear that investors end up in a much better place with modestly better results. And a 10% return provides almost three times as much total wealth for investors than a 7% return; so never discard small changes in return!
They add up over time-- $2.8 million dollars is notably better than $1.1 million dollars!
Past performance does not guarantee future results. Any cited performance represents past performance; future performance may be lower or higher. The investment return and principal value will fluctuate so that an investment, in the future, may be worth more or less than the original cost. Returns do not reflect the effect of passed-through capital gains.
An investor should consider an investment’s objectives, risks, and charges and expenses carefully before investing.
* Registration with the Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training.