Here are some things that people often forget …
If you invested $10,000 in 1944 compounded 5% annual return, it would be worth $186,791.86 today. Sounds great, right?
However, $10,000 in 1944 had a purchasing power equivalent to $138,350 today (according to the Bank of Canada's inflation calculator.) So if you socked away $10,000 in 1944, it means you would had a savings rate about 4.5 times the average Canadian's salary. Today would be like socking away 4.5X$38,000 (roughly averaged annual income in Canada) or $171,000 nest egg for 2014.
So putting $10,000 into your savings 1944 is like socking away $171,000 in 2014. Basically, if you had $10,000 in cash to invest 60 years ago, you were wealthy anyway. Similarly, your cash savings today will very likely be eroded by inflation over the next 60 years. All I'm saying is that while cash does return compounded return, you still need a hedge against inflation (like Securities). Cash is often a good short-term place to hold money, but historically has been seriously eroded by inflation.
PS I love going to work ….
I don't think anyone would advocate holding cash as a retirement/financial independence plan. Historical returns of 5-7% are based on being invested in stocks and bonds, and are REAL returns, ie: over and above inflation. Sitting on cash for 60 years will get you nothing, investments compounding at 5% for 60 years will make you rich.
AW: Invested at 8.5% means every year your investment will return 8.5% of its initial value to you. This can come in a lot of different forms depending on the investment vehicle. Interest on bonds, dividends from stocks, capital gains on stocks, etc…