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Tuesday, July 31, 2012

The Magic of Compound Interest

Did you get the lesson in high school about the magic of compound interest? Well, I did, and I thought of it yesterday at my bank, when I discovered I am earning .02% interest on my savings. So here's the new version of that lecture:

"Hey, kids, if you put your money in a savings account today, with the magic of compound interest, by the time you retire, it will have basically not grown at all! But that's not even the real magic! The real magic is that, once you adjust for inflation, we'll actually have made half of your money vanish into thin air!"

5 comments:

  1. What is this? 100%-er bait?

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  2. Of course this post inspires a rueful ex-libertarian thought: all the crap arguments in favor of privatizing social security because of the stock market's average rate of return over a 30-year period vs. the annuity value of social security. Which would be a slam dunk argument in a world with no management fees where 30-year periods bore some reliable relation to real people's retirement planning.

    I think a lot of these comparisons used nominal rather than real stock-market returns too, but that's just egging the custard.

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  3. The crazy part is that that is actually pretty good in this market.

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  4. Which, following the GWB argument, is why we should encourage school children to ditch the savings account and buy CC rated bonds or some form of derivatives...

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  5. Which is why we should encourage school children to invest in C- rated bonds or perhaps some form of derivatives based on...monetization of mystery meat futures?

    ReplyDelete