How a small change in interest rates can make a huge difference

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In the last post I showed how the hermit ended up with trillions of kgs of grain. How does that example work for you

Lets consider 3 scenarios where interest rates in a FD (fixed deposit)are 7% and long terms savings bond are 10% and in some kind of equity or land are 15% and I have Rs/$ 10000/- to spare.  One assumption for simplicity is that interest rates do not change in all the above cases over the long term. Second assumption is that income tax has not been accounted for in this.

In 3 years the value of the 10000 in my FD will be Rs/$ 12250, the value of my 10000 in the bond will be Rs/$ 13310 and in the equity it will become Rs/$ 15208/-

In 10 years the same will be Rs/$ – 19671, 25937 & 40455/- respectively – FD has doubled in value while the equity/land has gone up 4 times

In 20 years the same will be Rs/$ – 38696, 67274 & 163665/- respectively – FD has gone up 4 times but bond has gone up 6 times and equity 16 times

& in 40 years the numbers will look like this

Rs/$ 149744, 452592 & 2678635/-

So in 40 years- if I had invested 10000 at the age of 25 and went on to live till the age of 65 – in case of a FD I would made the money grow about 15 times, with just 3% more in case of the bond I would have made my money grow 45 times, but with 8% more I would have made my money grow 267 times!!!

Without putting in any hard labour , my money would work for me and make it grow at different levels as long as I stay invested.

This is something that I learned the hard way, but if you are you at around 25 years off age and chances are that you will live long enough, then investing for the long term even if you have just 10000/- today can make you a millionaire by the time you are 65.

Stay invested …till next time

 

 

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