Here’s the shortlist:

• The S&P 500 stock index for the past three decades has paid 10.7% on average
• Gold offers an average annual return of around 10.6%
• Commodities deliver 10.9%, on average, annually
• It’s best to use examples to see what your own returns will be
• Plan to save a fixed amount per month for a number of years
• Use compound interest calculators to measure the returns on various investments

Here are more facts about each point. Use the information below to choose your favorite investment category and set a regular saving amount.

S&P 500

The stock market can be quite volatile, but over time, the major indices, like the DOW, S&P 500, and the German DAX, all tend to deliver relatively decent returns. Of course, investors will have losing and winning years. The goal of long-term investing is to get into the game for several decades and reap the rewards of compound interest. For the S&P 500, one of the world’s most-watched indices, annual returns average about 10.7%

Gold

Gold is a favorite investment vehicle for investors who believe that the global economy is in trouble and will not hold up well in the long run. However, gold’s 10.6% average annual return is no higher, up till now, than the stock market or the commodities markets. The example below uses gold as the primary asset.

Commodities

Commodities like oil, natural gas, corn, and others can deliver solid returns during recessions, but their long horizon is about as attractive as gold and stock indices, coming in at 10.9%. Investors who like to diversify their holdings will sometimes include:

• Two or three commodities
• One or more precious metals
• Real estate trust shares
• Stock index fund shares in a self-directed IRA

Examples

Regardless of whether you invest in gold, stock indices, commodities, or something else, the best way to get a feel for how the money can grow is through examples. The following hypothetical scenario uses gold, but it could be anything for which you can estimate the future interest rate.

There are two basic ways of building an investment account. One is to simply make an initial deposit and reinvest the interest regularly. The other is to make an initial deposit, reinvest all interest, and add periodic deposits at regular intervals.

With Initial Investment Only

Suppose you are a gold devotee and prefer to maintain a portfolio of the yellow metal for long-term appreciation. Many people who feel this way open self-directed IRAs that are allowed to hold precious metals. Traditional IRAs can’t hold physical assets of any kind.

Assume that gold continues to post average annual returns of 10.6%. Further, for this hypothetical example, the investor purchases $10,000 worth of gold today and leaves it in the SDIRA for 30 years, adding nothing along the way. What would the account balance be at the end of the three decades?

Here is the calculation, arrived at by using the compound interest calculator.

Remember to enter the beginning amount of $10,000 and the correct interest rate, 10.6%, along with a period of 30 years and no payments (because there are no additions to the account).

The initial investment grew by $227,133.26 for a grand total account value of $237,133.26 by the time the 30 years had passed. You can use simple math to do a quick calculation based on this result. For instance, if you intend to deposit $20,000 instead of $10,000, then the result will be twice as large. Likewise, an initial investment that’s half the size will only be half as large.

With Initial Investment and Periodic Payments

A much better way to amass a large retirement account balance is to add periodic payments to the initial investment amount. Using the above example as a basis, consider what the results would be if the person makes monthly $100 payments to the account.

Then, alongside the $10,000 in gold placed in the portfolio on day one, there would be 12 payments every year of $100 for the duration of the three decades. Using a compound interest calculator, the results prove that even small monthly addition can make a huge difference in the final account balance. Assume the same rate of interest, initial deposit, and rate of return.

The initial $10,000, with monthly deposits of $100, for 30 years, at 10.6% interest, yields a total balance of $494,265.25. Note that the original amount plus the deposits amounted to just $46,000, which means the profit, due solely to the stated interest rate and compounding, was $448,265.25.

It’s clear that a small monthly payment can greatly augment the final balance of any long-term account. That’s the beauty of compound interest. It has a way of super-charging ordinary investing tactics and delivering amazing results.

Is There a Best Saving Strategy?

The short answer to the question about whether there’s a best way to save is “No.” The longer version of the response is that no one can be sure if future returns on various categories, like stocks or gold, will be the same as in the past. Investors should choose one or more assets that they feel comfortable with.

A popular choice is to set up a self-directed IRA that can hold precious metals, real estate, stocks, and other non-traditional assets in order to achieve diversification. The other piece of the savings puzzle is aiming for the long horizon. Younger people who have the advantage of time can put money away for several decades and let compound interest do its magic.

If you’re able to save consistently for a number of years, choose assets wisely, diversify your holdings, and regularly add to the account, it is possible to amass a large balance by the time retirement comes along.

In order to do so, it’s essential to learn how compound interest works. Once you do that, it’s up to you to choose to invest a modest amount of earnings from forex or alternative assets like wine or fine art. The best way to get started is to get acquainted with how compounding works. Then, study a few examples of how people can sock small amounts of money away for the long haul and potentially earn excellent returns.

Rules and Patience Are the Keys

It’s no exaggeration. Potential profits on forex, or foreign-exchange currency, trading accounts can be immense. Provided the trader follows strict, conservative principles and avoids the temptation to give in to emotion, it’s possible to accumulate a vast sum over the span of a few years.

For those who are patient enough to trade forex for a full decade, the total returns can be nearly unbelievable.

Is There a Secret?

What’s the secret? There isn’t one unless you consider compound interest to be a historical mystery. But, if there is an unknown among the data for this particular financial situation, it is this: Millions of part-time forex traders earn around 2% in profits on their accounts per month. Note the “per month” part of that statement.

That equates to an annual ROI of more than 26% when using monthly compounding. Do you have the patience and emotional detachment to follow a strict trading plan for a few hours per day? If so, and if you’re content to let an initial investment grow at 2% per month for ten years, then it’s possible to earn some intense profits.

How Does It Happen?

The magic happens for two reasons, actually. One, that 2%-per-month return is higher than nearly all other kinds of investment accounts. Casual traders and investors struggle to reach annual, not monthly, returns of just 10 or 12%, which comes to around 1% per month, not 2%.

The other piece of the puzzle is more subtle. It’s the way compound interest works. In short, the idea behind compound rates is that investors are earning “interest on interest.” As balances grow during the early years of accumulation, the graph takes on a non-linear shape as the profits line curves upward toward the latter half of the time period.

A Realistic Example With Forex

Use a fully-functional compound interest calculator to do some easy number plug-ins. Hypothetically, consider an FX trader who opens a no-commission brokerage account and funds it with $5,000 to start out.

Then, assume the trader puts in time learning the process of buying and selling foreign currency on a demo account, which allows account-holders to use fake money, and no risk of acquiring order-entry skills.

After a couple of weeks, the new investor is ready to begin earning with forex investments and has modest success by racking up about 2% returns on the account balance each month. At the end of one year, the amount has grown by 26%.

Use the calculator to put $5,000 into the “Principal or Start Amount” box, 26% into the annual “Interest Rate in Percentage” blank, and check “Monthly” as the compound frequency.

The “Length of Terms” is ten years, and there is no payment amount or payment frequency. The start date will automatically fill for today’s date. Click the “Calculate Now” button on the lower right of the calculator.

From the results, it’s easy to see that the investors did quite well with the initial $5,000 in the account, which grew, with NO additions except the monthly earnings of 2% on the trading, to $65,475 by the end of the ten years, meaning there was a net “profit” of $60,475.

That’s a healthy return in any economy on a 10-year account balance, which ended up being more than 13 times its original amount.

What About Other Investments?

You can use the same calculator from the above example to figure a different kind of return on two popular “alternative” investments, fine wine and collectible works of art. This calculation uses all the same parts of the calculator but also adds the “Payment” and “Payment Frequency” functions.

Most people who invest in art and high-grade wine make regular purchases to add to their inventories. Even though art and wine don’t earn annual returns anywhere near forex trading, they have been consistent performers in recent years. On average, collectible art returns about 10% annually, while wine brings in slightly lower returns at around 8%.

Try two examples on your own and see what results a person can get from successfully and regularly putting some of their investment capital into these two alternative assets. Here are the results.

Art

Begin with an investment amount of $6,000 for a small group of artworks bought at an auction. Assume the interest rate is 10 percent annually but that it compounds monthly. Each year, the person purchases an additional $5,000 in art to add to the collection. Thus, the payment frequency is annual, not monthly.

At the end of 10 years, the results are $97,752.68 in total balance, with payments of $50,000 during the ten years. The net profit is $41,752l. All data is hypothetical, by the way.

Wine

Wine, on average, earns around 8% per year for investment-grade selections. Assume an initial balance of $6,000 and annual additions of new bottles of $5,000. Compounding is monthly, but the annual interest rate is 8%.

At the end of 10 years, your hypothetical wine collection could be worth $86,790, with $50,000 in additions along with the original balance of $6,000. The net profit is $30,790.

There are no guarantees in the world of investments, but people who leverage the power of compound interest can do well if they stick to their plans.

Using compound interest calculators helps us see the potential of investing in a hard-asset. Likewise, using the “Rule of 72,” investors can easily determine how long it will take for any account to double in value based on the stated interest rate.

Wine is a Viable Liquid Asset

There are two subjects that go together very well: alternative investing and compound interest. Why? Because millions of people are searching for a way to avoid the current market downturn in equities and find one or more assets that deliver worthwhile long-term returns.

One of the best alternatives is fine wine, which has a very stable return and tends to rise in value even during adverse economic conditions. Until recently, it was nearly impossible for everyday traders and investors to acquire a stake in wine.

New developments in online investing, particularly in crowdfunding, have enabled millions of consumers to build a portfolio of fine wines. Not only is wine a liquid asset, no pun intended, but it has a solid history of increasing in value with the passage of time. The English idiom, “… like a fine wine,” refers to something that gets better as it ages, not weaker or less attractive.

Using Compound Interest To Evaluate a Wine Investment

Let’s use an accurate compound interest calculator to examine the wine situation more closely. What many people don’t know about wine is that it is not only one of the most stable of the “alternative” asset classes in terms of ROI but that it has become a wildly popular way to park capital during the past decade.

Since online investing exploded two decades ago, it has become much easier for everyday investors to buy things like wine, fine art, and collectible cars. Even high-end art is no longer out of reach of ordinary, middle-income folks. Why?

Crowdfunding has made it possible to purchase small shares or increments of very large assets. Nowadays, for example, you can log onto one of the major art websites and create an investor account. After that, it’s simple enough to buy a stake in a major painting or sculpture. Otherwise inaccessible pieces of high-end artworks are now on offer for $50 per share.

Of course, it’s up to the owner of the asset to decide how to raise money. If you own a $100,000 sculpture and would like to gain access to some of its value, you could offer half of it, or $50,000, on a crowdfunding site at $50 per share. Once you sell 1,000 shares, you have raised the capital you needed but now have a very large number of co-owners, all of whom hold a small piece of the action when you put the work up for auction.

Let’s look at how the returns on fine wine work out for modern investors. In recent years, the wine market has brought in millions of small backers, and many European and US vineyards are prospering as a result. The average return on fine wine is nine percent per year. As noted below, that means each dollar invested doubles in eight years.

But what if your goal is to accumulate wine in a for-fee storage facility owned by one of the crowdfunding sites? Suppose you receive a $5,000 bonus from your employer and decide to buy investment-grade wine with the funds. If you’re 30 years old now and hold the wine for 40 years until your expected retirement at age 70, how much will it be worth if it appreciates at nine percent per year?

Using the compound interest calculator, we’re happy to see that the modest investment of $5,000 in a few cases of top-grade wine grows to the astounding sum of $180,549 by an age-70 retirement.

There are no guarantees on what wine or any other alternative investment will return, but it’s informative to witness the incredible power of compound interest and how it can turn a small investment into a giant nest egg for a retiree.

How Long Does It Take To Double Your Investment?

Whether it’s wine, gold, a savings account, or a piece of real estate that returns a consistent percentage or profit year after year, there’s a quick and easy way to figure out how long it will take for the investment to double in value. The trick is called the Rule of 72 because it uses that number as the centerpiece of its calculation.

Let’s say you purchase ten cases of high-end champagne for $10,000. After doing historical research on the brand, you determine that it has a long-term ROI of 18 percent. That’s high for a stock or bar of gold but relatively normal for excellent champagne. When will your 10 cases of bubbly be worth twice what you paid for them?

Using the Rule of 72, we simply divide the stated rate of return, in percent, into the number 72. So, our champagne will be worth twice the purchase price in four years. The math: 72 divided by 18 equals 4. It’s important to always use the percent ROI when you do the dividing.

What About Gold?

The beauty of the Rule of 72 is that you can do a quick calculation to evaluate all sorts of investments. Take gold, which has posted an average annual ROI of about nine percent for the past two decades. The math is easy on this one because nine goes into 72 exactly eight times.

So, if gold continues to return an average of nine percent per annum, a big assumption for sure, and you buy $10,000 in bullion today, your shiny stuff will be worth $20,000 in eight years. Of course, these are just examples based on past returns and in no way should be taken to imply that wine or gold will repeat those rather stunning prior performances.

But, what is the relationship between gold and the going interest rate at any given time? Plus, why do you always hear people say that they have “earned” such-and-such an interest rate on their holdings of gold bullion? Finally, is it possible to calculate an estimated rate of return on any of the precious metals?

Here’s what we’ll take a look at:

1. How does the price of gold respond to interest rates and the strength of the dollar?
2. How do holders of precious metals, both silver, and gold, earn money on their assets?
3. Is it possible to estimate, within reason, a rate-of-return on gold?

The Dollar, Gold, and Interest Rates

Some gold investors pay close attention to two things: the strength of the U.S. dollar and the interest rate. There has been lots of scholarly research into the relationship between these factors. What is the truth?

First, all you need to do to discover how gold and the dollar perform is to look at an overlaid chart. In most cases, when the dollar gains strength, the price of gold drops. The two are said to have an inverse relationship.

Likewise, you’ll often hear talk about interest rates also being an inverse indicator of gold prices, but that is not actually the case. Many studies have shown that while gold and interest rates do occasionally travel in opposite directions, they also rise and fall in tandem as well.

Earning a Return on Gold and Precious Metals

Like all other commodities, which is what precious metals really are, gold does not earn interest. Instead, holders of the metal make gains based on appreciation, much as someone might show a profit by holding real estate, diamonds, or fine wine. However, compared to assets that do pay interest, gold compares favorably, as noted below.

Investors who keep the bulk of their assets in gold do so for reasons other than interest rates. Many hold the metal because they believe that the world economy, or the national one for that matter, is about to take a dive.

Recent pandemic-related problems, supply-chain disturbances, the soaring price of oil, and international political conflict all point to a very positive near-term future for the price of gold, silver, and other precious metals.

What’s a Realistic ROI for Gold?

Between 1971 and 2019, people who held gold bullion enjoyed a rate of return of about 10.6 percent. That contrasts with U.S. stocks which returned about 11 percent during the same time frame, and bonds, which were not nearly as favorable, at six percent.

Keep in mind that most gold enthusiasts are not so interested in historical returns on the metal as they are in the future potential of the metal to appreciate significantly in value if the global economy goes into crisis mode or hits periods of significant turbulence.

If you simply want to calculate what you’d earn by investing $2,000 per year, for example, in gold bullion and assume it earns its historical return of 10.6 percent, use this calculator.

Here’s an example, using the $2,000 per year figure above. Then, assuming a 10.6 rate, begin with a zero balance, contribute the $2,000 in gold at the end of each year for the next ten years, and use the calculator to show your result of $33,654 by the end of the 10-year period.

Conclusion

While gold, silver, platinum, and palladium don’t pay interest, they are valuable assets that do tend to appreciate in value over time. This is especially true when the economy is in trouble and investors search for so-called “safe havens” for parking their capital.

Gold usually goes up when the dollar goes down in value, so the two are said to be inversely related. But even though many people believe that rising interest rates send gold down in value, there’s no long-term proof of that theory.

As far as ROI is concerned, it’s essential to understand that while the 48-year return on gold is about 10.6 percent and comparable to stocks, the yellow metal and the securities markets often trend in opposite directions.

That’s why so many people aim to balance their stock portfolios with precious metals, especially gold and silver.