We finally made it. September 15, 2016. We had been eyeing this date for 22 years!
Back on July 7, 1994, while searching for a suitable investment for our then 52 year old clients, we stumbled across a fascinating bond; a zero coupon (pays interest at maturity) Mississippi tax free bond. For an investment of $16,323, the bond promised to return $70,000 on September 15, 2016. Back in 1994, 2016 seemed a long way away (like looking out to the year 2038 today). But time passes quickly, doesn’t it? Last week, on September 15th, our client‘s account was credited with $70,000! Their money more than quadrupled in this 22 year period. In case you are wondering, the rate of return was 6.8% tax free which for them equates to a taxable return in excess of 11%.
Today, of course, no such yields are available. So what is the take away from this story? For us, it is a real life illustration of the power of compound interest. Many of us will be pleased if our investments, like this bond, grow at 6.8% over time. This is certainly not an unrealistic expectation for a portfolio of 60-70% equities. At 6.8%, money doubles approximately every 10 years. So investors need to understand the power of compound interest and practice some patience as we watch out money grow.