“It’s not how much money you make,
but how much money you keep,
how hard it works for you,
and how many generations you keep it for.”
— Robert Kiyosaki
Will your savings and investment plan make more money in 5 years with a fixed (guaranteed) rate of return or a variable rate of return when the fixed rate equals the 5-year average rate of return?
Shouldn’t the results be the same in 5 years? Let’s take a look at a comparison.
Beginning Balance: $0
Monthly Deposit: $500
Accumulation Period: 5 Years
Average 5-Year Rate of Return: 5.2%
Taxes: Not Included
Inflation: Not Included
Fixed (Guaranteed) Rate of Return Result (5.2%)
Account Balance at the end of 5 Years: $34,257
Variable Rate of Return (Average = 5.2%)
End of Year 1 at 5% Rate of Return: $6,300
End of Year 2 at 3.5% Rate of Return: $12,731
End of Year 3 at 7% Rate of Return: $20,042
End of Year 4 at 4.5% Rate of Return: $27,214
End of Year 5 at 6% Rate of Return: $35,207
Your money will earn $950 more with a Variable Rate plan.
This example clearly shows that while a guarantee provides safety, accepting some risk will typically earn a higher Rate of Return over a period time.
The quickest way to double your money is to fold it in half
and put it in your back pocket.”
– Will Rogers