In some of my posts I have referenced how money invested over a certain period of time growing at a percentage can grow to a large sum of money. Some you have asked how I got this number... basically you want me to show my work. I think this is a good idea, and probably something I should have done awhile ago. Instead of showing you though I'm going to provide you with my Excel calculators that I use.
Hopefully you'll have "fun" playing with the inputs too so you can see how your own investments can grow if you stick with a dividend growth investment plan.
I will be creating a page on my site that will link to the following Excel models and hopefully more.
- Drip Calculator.xls - This file will show you the beauty of compounding when you reinvest your dividends. You need to input the following:
- Initial Investment - How much your initial investment in the stock(s) is.
- Monthly Contribution - How much you are committed to contributing each month
- Initial Dividend Yield - What was the dividend yield of the stock (or average yield if investing in more than one) when you made your initial investment
- Dividend Growth Rate - This is the estimated annual dividend growth rate. A very conservative rate would be 6%, a high estimated rate would be 15%.
- Stock Growth Rate - This is the estimated annual growth rate for a stock. A very conservative rate would be 6%, a high estimated rate would be 15%.
- Dividend Tax Rate - Use 0% for Roth IRA. For taxable accounts use 15% (as of 2012).
- The Value of Time.xls - This file does a great job of displaying why it is so important to invest early in life. It tells the story of the early investor vs the late investor. The early investor invested $5,000 a year from ages 18-27 and then stopped for a total of $50,000 invested. The late investor started investing $5,000 a year at age 30 and continued until age 65 for a total of $180,000 invested. Both had an average rate of return of 11%. Guess who made $2.5 million more over the life of their investments?