The Power of Compound Growth

August 22, 2018 | by Scott Miller, Jr.

The 10 millionth Ford Mustang recently rolled off the assembly line. 10 MILLION! As amazing as 10 million is, there may be an even better story. The story of the first person to ever purchase the Ford Mustang was School teacher named Gail Brown, now Gail Wise. Gail purchased the car on April 15th, 1964 for just $3,447.50. Many articles have been written about Gail including an article in USA Today titled, “The first Ford Mustang owner kept the car. It’s now worth $350,000.” Gail drove the car for 15 years until it stopped running accumulating 68,000 miles. Instead of selling the car, Gail’s husband Tom insisted that they keep the car promising to restore it once he retires. They built an addition on to their two car garage to store the car and once Tom retired he was able to use the internet to find replacement parts and restore the car himself.

Like the USA Today article, many of the articles focus on the current value of the Ford Mustang, $350,000. Jonathan Klinger a classic car expert says, “A car with significant provenance like this – being the original owner of the first-ever sold Ford Mustang – would likely have a premium of around 10 times the current market price.” Imagine that, $350,000 is equivalent to winning the lottery, or is it? Let’s look at the numbers.

Investing Early Pays Off

First off, this is not to detract from Gail in anyway, as her story is a great one, rather it is to highlight the power of compounding. Gail purchased the car for $3,447.50 in 1964 over 54 years ago. She did drive 68,000 miles so she got actual use out of the car and that is not accounted for in these numbers. Maintenance, the cost to build the additional garage and the restoration expenses are also not accounted for. Still the numbers appear eye popping an investment of $3,447 is now worth $350,000. The reason that the numbers seem unbelievable is not because the rate of return on the mustang was massive but rather it is the power of compounding. An investment of $3,477.50 growing to $350,000 over 54 years and 4 months would equal an annual return of 8.9%. For context over that same period the S&P 500 returned 9.95% annualized. An investment of $3,447.50 in the S&P 500 at the time the first Mustang was purchased would be worth over $575,000 today!

Gail’s story is a great one but so is the power of compounding. The earlier people can save and invest, the better they will be over the long-term. While the Roth IRA was not established until 1997, imagine $3,447.50 invested using a Roth IRA account now worth $575,000 with tax free distributions during retirement. It is never too late to start investing but the earlier that you, your children or grandchildren can start the better off they will be. To learn more about how you can use compound growth to your advantage please feel free to reach out to one of our advisors.

 


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