[...] In an earlier entry about the cost of waiting one year to begin investing for retirement, I posted a chart from AllFinancialMatters that demonstrated the power of compound interest. Vintek posted a math exercise related to the subject. I got this from a book called The Random Walk Guide to Investing by Burton Malkiel. It’s a book I recommend, and I’ll eventually talk about it in the forum. Here’s the exercise: [...]

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Here’s a little exercise for those of you who are spreadsheet-inclined. I got this from a book called The Random Walk Guide to Investing, by Burton Malkiel. It’s a book I do recommend, and I’ll eventually talk about that in the forum. Anyway, here’s the exercise:

William and James are twin brothers who are 65 years old. 45 years ago (at the end of the year when he reached 20), William started an IRA and put $2K in the account at the end of each year. After 20 years of contributions, William stopped making new deposits but left the accumulated contributions in the IRA fund. The fund produced returns of 10% per year tax-free. James started his own IRA when he reached the age of 40 (just after William quit) and contributed $2K per year for 25 years, making his last contribution today. James invested 25% more money in total than William. James also earned 10% on his investments tax-free. What are the values of William’s and James’s IRA funds today?

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