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The benefit of earning a slightly higher annual return on your investments

Let's suppose that you have $10,000 to invest. Look at the following table to see what return you will earn depending on your interest rate, assuming for the moment that taxes are non-existant.

Year: 2% 5% 8% 10% 15%
0 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
5 $11,040.81 $12,762.82 $14,693.28 $16,105.10 $20,113.57
10 $13,458.68 $20,789.28 $31,721.69 $41,772.48 $81,370.62
20 $19,998.90 $55,160.15 $147,853.44 $281,024.37 $1,331,755.23
30 $36,225.23 $238,399.01 $1,487,798.47 $4,903,707.25 $88,177,873.87

If you leave that $10,000 in a savings account, earning 2% interest, for 30 years, you'll end up with $36,000. If you invest it in bonds, earning 5% interest, you'll end up with $238,000. If you invest in the overall stock market, and if the stock market returns 8% per year, you'll end up with nearly $1.5 million. And if you beat this 8% return by 2% per year, you'll end up with $4.9 million.

Over the long term, stocks have historically outperformed bonds by several percentage points. And as you can see, even slightly improving your annual rate of return can earn you big bucks in the long run.