The Magic of Compounding

The magic of compound interest is simply a combination of time and rate of return. Let us begin by taking a truly long-term look at the financial markets. Complete data tracing the returns of financial assets are available beginning in 1872. I use primarily the Standard & Poor's 500 Composite Stock Price Index (and a predecessor index prior to 1926) as the measure of common stock returns, the long-term (20-year) U.S. government bond as the measure of bond returns, and the 90-day U.S. Treasury bill as the measure of the returns on cash reserves.