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Investing Tips from FFGGetting in the game earlyYou’re never too young to begin building an investment portfolio.There’s a simple word that has profound implications for savings and investing: compounding. Like a snowball that grows as it rolls down a hill, compounding provides the potential for your money to grow, reinvesting your investment earnings. It is a basic model for growth potential, and the more you invest, the greater the opportunities exist to create long-term value. Let’s take a hypothetical example* to illustrate:
If you invest $1,000 at age 20 and do not add anything to the principal, relying instead on 7.2% annual earning growth, you would end up with $32,000 at age 70.
If you wait until you’re 30, though, investing that same $1,000 earning 7.2% annually, you would end up with $16,000 at age 70 — a decrease of 50%.
Finally, if you invest the $1,000 at age 20, earning 7.2% annually while contributing $83 a month until retirement, you would have $465,000. (This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.)
Calculating the Impact of Compounding To estimate how long it will take for compounding to double an investment, use the rule of 72. Divide 72 by the annual rate of return. The answer is the approximate number of years it would take to double your investment’s value, assuming a fixed rate of return.
For example: If you earn 9% annually, it will take 72/9 = 8 years to double the value of your investment. Please note: The rule of 72 is a mathematical concept and does not guarantee investment results nor does it function as a predictor of how an investment will perform. It’s an approximation for the impact of a targeted rate of return. Investments are subject to fluctuating returns and there is no assurance that any investment will double in value.
The Long-Term Effect Adopt a strategy to maintain your portfolio for the long-term, it can help you emotionally ride out the short-term effects of sharp market swings. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Past performance is no guarantee of future results. This material was prepared by LPL Financial.Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. American Airlines Federal Credit Union and Flagship Financial Group are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Flagship Financial Group, and may also be employees of American Airlines Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, American Airlines Federal Credit Union or Flagship Financial Group. Securities and insurance offered through LPL or its affiliates are:Not Insured by NCUA or Any Other Government AgencyNot Credit Union Deposits or ObligationsNot Credit Union GuaranteedMay Lose Value
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