August 2nd, 2010 | 
Category: 
Image via WikipediaI read a post last week on Cash Money Life and I just loved how the compound interest graph conveyed the power of compound growth. It should be a standard education tool. I have filed it under my inspiring teaching tool along with this amazing video Drive: The surprising truth about what motivate us.
The proof is in the pudding is where I come in and who wouldn’t agree with Einstein anyways?!? One thing that most investors or undecided investors think first is that you can’t get 10% interests nowadays. You hardly get anything. My dad often reminds me how he was investing at above 10% in the early 80′s but then again mortgage rates were also significantly higher… We need to play the hand that we were dealt which are low interest. That’s where dividends come in to create compound growth.
Rule of 72
Compound Growth
I can’t say that I have many years under my belt in proving the Rule of 72 but I started with my stock dividend investment in early 2009. (I officially started with dividends at least 9 years ago but that was mostly through mutual funds.) I do have some example of monthly and quarterly compound growth with some extrapolation for the next couple of years.
Here are a few of my holdings and what their yield is year over year. CPG is the only one without re-invested dividends as I don’t have enough to buy 1 share yet. Both BNS and CUF.UN each are buying 2 shares each. BNS is doing so on a quarterly basis where as CUF.UN is compounding monthly.
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You can see that my yield increases every year except for CPG since I am not reinvesting the dividends. My calculations are based on my initial investment not including the re-invested dividends. The results show the power of compound growth. This is one of the difference with having your dividend re-invested compared with letting your dividends accumulate to pick when to invest. The compound growth is lost or becomes less efficient in the latter case.
All I need is some dividend increase to accelerate my yield growth! You can imagine why investors get excited when a dividend raise is announced. Imagine how fast it accelerates everyone’s compound growth machine! And you didn’t have to lift a finger. That’s your money at work.
Readers: Have you got any investments that have grown over 10% yield? Is it possible to reach a 20% yield?
Are you talking yield on original investment? I am sure you know that there are a few flaw in that thinking. One being that it doesn't take inflation into consideration.
@MG I am. That's simply a comparative number though. You need a baseline to compare. I generally don't spend much time doing adjustment based on inflation.
I am also not sure how it would affect compound growth. If the money doubles after x number of years, it still doubled mathematically speaking. From a spending perspective, inflation needs to be taken into account otherwise, you may not have as much money as you thought you needed.
What other flaws is there with calculating a yield from dividends?
No real magic in compounding, just great math (and your money) at work!
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