If I have $500,000 and I lock in at 7% interest for 35 years how much money will i have?

Answer 1

You may not have a penny. Anyone paying 7% "Guaranteed" may not be around in 35 years or it could be a scam. Be very careful. One issuer (no matter how good), increases the risk dramatically.

To answer your question: $5,388,290 is what you make if the organization is real and survives 35 years. This does not take in the "buying power" you'll lose through inflation and taxes. Even if you could get this rate safely..... I'd be more inclined to invest in a balanced portfolio of stocks and bonds.

Answer 2

Hi,

Assuming that interest is compounded annually, after 35 years, your $500,000 would be:

= $500,000 x 1.07 ^ 35
= $5,338,290.74

If interest is not compounded, your $500,000 would be:

= $500,000 + ($500,000 x 7% x 35)
= $1,725,000.00


Now, in order to fully understand what this means, you need to consider the affects of inflation on the final figures above. Inflation represents the change in price of a variety of goods and services from year to year. On average, inflation (in Australia and the U.S.) is aimed at around 3.5% per annum. The above figures seem like a lot of money, but in reality, after 35 years, if you do not take into account inflation, you will be severely disappointed with what you can afford with the final sum. So, if you want to understand the above figures in terms of what they would purchase today, you need to account for inflation:

If interest is compounded annually, taking into consideration an average inflation rate of 3.5% p.a.:

= $500,000 x (1.07 - 0.035) ^ 35
= $1,666,795.22

If interest is not compounded, taking into consideration an average inflation rate of 3.5%:

= $500,000 + ($500,000 x (7% - 3.5%) x 35)
= $1,112,500.00

From the above you should be able to see that after 35 years with interest compounded annually, the value of $5,338,290.74 sounds like a lot, but when you consider inflation, the final value is in fact $1,666,795.22 in todays terms (i.e. $5,338,290.74 will purchase in 35 years time, the same amount of goods or services as $1,666,795.22 would purchase today).

The figure that factors in inflation is known as the 'real value'. It essentially uses what is known as the 'real rate of return' (i.e. the actual rate of return less the expected inflation rate [7% - 3.5% = 3.5%]) and lets you understand the value of an investment at some time in the future in todays terms.

Cheers,
Richard

Answer 3

In addition to the answers already provided, here is a helpful rule in determining how long it will take for your money to DOUBLE at a specified rate of return (in your case, 7%) assuming compounding interest.

It's called the Rule of 72...

Take 72 and divide it by the interest rate you would be getting for an extended period of time (7% in your case)

72/7 = 10.29 years

Of course, finding a 7% rate of return with minimal risks is the trickiest part.

Answer 4

One thing that you should take into account in any such calculation is the cost of inflation and taxes. If inflation is 3% then even though the dollar amount will be what the calculators say, you won't be able to buy what that amount will buy today. Also if this is in a taxable account then you will pay tax every year and so your return will be reduced by that.

Answer 5

I know a company currently offering 25% annually.

Answer 6

according to this website, you should have over $5.3 million. Congratulations!