As Albert Einstein once said, “the most powerful force in the universe is compound interest.”
On an annual basis, a few percentage points doesn’t mean much, but compounded over several years; well that’s a different story. Lets look at one of the legendary value investors of our time, John Neff, who managed the Vanguard Windsor Fund for over 35 years, from 1964 to 1995. The Windsor Fund returned 13.7% per year versus 10.6% for the S&P 500 Index.
After 35 years, $10,000 would have turned into $339,961 if invested in an index fund, but the Windsor Fund would have returned $743,346 over the same time period, or a difference of $403,000.Tags: basis points