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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Thursday, August 10, 2006

Power of Reinvesting

When investing it is essential to reinvest the income you make off those investments. Your returns will decrease significantly if you take out your dividends or coupon payments.

Look at the time period of 1980-2000 and take $1,000 and invest it in stocks with reinvestments, stocks without reinvestments, bonds with reinvestments and bonds without. It is stunning to see the differences.

Ending Wealth Average Return
Stocks with Reinvestments $18,408 15.7%
Stocks without $9,728 12.0%
Bonds with Reinvestments $9,633 12.0%
Bonds without $1,789 3.0%

This information should go a long way into your decision of reinesvting your earnings or not.

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