Compounding

Question: Would you rather have a million dollars now or take a penny now and double the amount for 30 days?
 
As expected, 90% of people chose the million dollars now option. I would have made this choice myself a few years ago. But this would have been the poorer choice, because you would have shortchanged yourself by over $4 Million at month-end. Don’t believe me? Look at penny table calculation on the right. The simple act of doubling your previous day’s investment can rapidly reap huge rewards thanks to the powerful concept known as compounding .

Now a 100% return every day is highly unlikely, but the principle of compounding holds true for even smaller returns (though it will take longer than a month to make your fortune). This is why compounding is a core aspect of good personal finance and the reason why the rich get richer. As outlined in a Kiplinger , when you're young, you have an asset money can't buy: TIME. Start saving now and turn pocket change into riches. Compound interest has been called the eighth wonder of the world. And with good reason. It magically turns a little bit of money, invested wisely, into a whole lot of cash. Even Albert Einstein is said to have called it one of the greatest mathematical concepts of our time. Read More »

OK, Investing Goddesses! Last post we left you with the cashmere sweater… so here’s what we are really talking about. . .

COMPOUNDING Ladies!

Check out the wonders of compounding. We talked about Warren Buffett still driving his old beat up VW. You may see this as being cheap or Warren lacking interest in acquiring a nice ride. But look at it as how compounding influences your big diva spending habits.

Back in the day you could buy a hot trendy ride for say $20,000, but today that sexy car would be worth little or NADA in ten years! Check this out, Warren B. knows better, he knows you can get a 23% annual compounding rate of return on his investments. This means the $20K if invested today will be worth $158,518 in 10 years. In 20 years it may be worth $1,256,412 and in 30 years it may be worth $9,958,257!!! To Warren, or anyone who’s a true value investor, this is just too much to pay for a car! So think about that when purchasing that cashmere sweater, too. Just take the same equations and keep in mind how many cashmeres you could buy in the future if you only saved that dough today!

Listen Diva’s! Here’s another example to drive this point home. Coca-Cola went public in 1919 at $40 per share. Read More »