Comments on: Saving and Investing: The Power of Compounding http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/ personal finance that makes cents Thu, 20 Nov 2008 18:37:52 +0000 http://wordpress.org/?v=2.5.1 By: Jill Foster » Blog Archive » spending habits, compound investing, & ING takes on annTaylor loft http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-135589 Jill Foster » Blog Archive » spending habits, compound investing, & ING takes on annTaylor loft Mon, 09 Jun 2008 03:04:16 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-135589 [...] ING offers strong security protocols & fine, reliable customer service. And as Michael Fischer expertly explains at his videoblog, the compounding examples tell it [...] [...] ING offers strong security protocols & fine, reliable customer service. And as Michael Fischer expertly explains at his videoblog, the compounding examples tell it [...]

]]> By: TorbenGB http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-105617 TorbenGB Mon, 19 Nov 2007 15:23:15 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-105617 > in exhibit F, why does the “contribution” keep going up? Good question, and I too am wondering whether this is an error or deliberate. If deliberate, then I also don't get it. (I haven't watched the videos.) > in exhibit F, why does the “contribution” keep going up?

Good question, and I too am wondering whether this is an error or deliberate. If deliberate, then I also don’t get it.
(I haven’t watched the videos.)

]]> By: Dave Child http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-104447 Dave Child Mon, 12 Nov 2007 13:48:35 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-104447 I must be missing something: in exhibit F, why does the "contribution" keep going up? Interest has its own column, so is the idea to increase the contribution every year ($630 per month in year 2 etc)? Or am I just being simple? I must be missing something: in exhibit F, why does the “contribution” keep going up? Interest has its own column, so is the idea to increase the contribution every year ($630 per month in year 2 etc)? Or am I just being simple?

]]> By: Book Review: The Automatic Millionaire ? Get Rich Slowly http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-101989 Book Review: The Automatic Millionaire ? Get Rich Slowly Tue, 23 Oct 2007 12:00:23 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-101989 [...] Each person’s latte factor is different. For my wife, it’s actually lattes. For me, it’s comic books. Regardless, Bach says that if instead of spending money on our splurges we invested an equal amount, we could be well on your way to becoming millionaires. He’s doing nothing more than stressing the incredible power of compound returns. [...] [...] Each person’s latte factor is different. For my wife, it’s actually lattes. For me, it’s comic books. Regardless, Bach says that if instead of spending money on our splurges we invested an equal amount, we could be well on your way to becoming millionaires. He’s doing nothing more than stressing the incredible power of compound returns. [...]

]]> By: Charitable giving vs. the value of compounding and debt reduction—a dilemma and temporary solution « Mrs Micah: Finance and Life http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-99529 Charitable giving vs. the value of compounding and debt reduction—a dilemma and temporary solution « Mrs Micah: Finance and Life Sat, 06 Oct 2007 22:12:57 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-99529 [...] just assume that we all know the benefits of compounding. If not, this post by Get Rich Slowly has some good videos of Michael Fisher talking about it along with links to [...] [...] just assume that we all know the benefits of compounding. If not, this post by Get Rich Slowly has some good videos of Michael Fisher talking about it along with links to [...]

]]> By: spending habits, compound investing, & annTaylor loft « Housewifery http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-95946 spending habits, compound investing, & annTaylor loft « Housewifery Thu, 23 Aug 2007 03:24:07 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-95946 [...] would do well to resist that clothing splurge; & as Michael Fischer expertly explains at his videoblog, the numbers tell it [...] [...] would do well to resist that clothing splurge; & as Michael Fischer expertly explains at his videoblog, the numbers tell it [...]

]]> By: The New Graduate’s Guide to Financial Freedom ? Get Rich Slowly http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-90199 The New Graduate’s Guide to Financial Freedom ? Get Rich Slowly Tue, 19 Jun 2007 13:24:50 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-90199 [...] It doesn’t take much. Just $200/month — about $2500/year — is all you need to have a million dollars saved by the time you retire (assuming average returns and inflation). But let’s say that you put off saving for retirement. Let’s say that you do what I did, and wait until your 37 years old to begin saving. Assuming average numbers, that 15 year delay will make your money worth only $300,000 at retirement. That, my friends, is the power of compounding. [...] [...] It doesn’t take much. Just $200/month — about $2500/year — is all you need to have a million dollars saved by the time you retire (assuming average returns and inflation). But let’s say that you put off saving for retirement. Let’s say that you do what I did, and wait until your 37 years old to begin saving. Assuming average numbers, that 15 year delay will make your money worth only $300,000 at retirement. That, my friends, is the power of compounding. [...]

]]> By: What is a Roth IRA and Why Should You Care? ? Get Rich Slowly http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-88531 What is a Roth IRA and Why Should You Care? ? Get Rich Slowly Tue, 05 Jun 2007 12:47:28 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-88531 [...] understand why it’s important for you to open a Roth IRA, please watch this video about the power of compound returns. Then read about how compound returns favor the young. The earlier you begin to save for [...] [...] understand why it’s important for you to open a Roth IRA, please watch this video about the power of compound returns. Then read about how compound returns favor the young. The earlier you begin to save for [...]

]]> By: A Collection of Financial Literacy Resources ? Get Rich Slowly http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-85034 A Collection of Financial Literacy Resources ? Get Rich Slowly Tue, 01 May 2007 12:01:05 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-85034 [...] The power of compounding [...] [...] The power of compounding [...]

]]> By: Get Rich Slowly « Welcome to the Table http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-83283 Get Rich Slowly « Welcome to the Table Sat, 07 Apr 2007 03:58:22 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-83283 [...] Excellent overview and videos of the Power of Compounding (here) [...] [...] Excellent overview and videos of the Power of Compounding (here) [...]

]]> By: J.D. http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82971 J.D. Wed, 04 Apr 2007 17:13:56 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82971 <b>@Cory</b> In that exhibit, Abby contributes $2000 a year for ten years. Zak contributes $2000 a year for TWENTY years. Abby contributes $20,000 total. Zak contributes $40,000 total. Abby contributes half as much as Zak, but because of compounding, she ends up with the same amount. @Cory
In that exhibit, Abby contributes $2000 a year for ten years. Zak contributes $2000 a year for TWENTY years. Abby contributes $20,000 total. Zak contributes $40,000 total. Abby contributes half as much as Zak, but because of compounding, she ends up with the same amount.

]]> By: Cory http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82969 Cory Wed, 04 Apr 2007 17:05:29 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82969 I simply read the article, and didn't watch the clip (I'm at work), BUT: In exhibit D, both appear to be contributing 2000 per year. Zak starts ten years later, and finish with 500 bucks less. Is this supposed to motivate to start earlier, or demotivate? I simply read the article, and didn’t watch the clip (I’m at work), BUT:

In exhibit D, both appear to be contributing 2000 per year. Zak starts ten years later, and finish with 500 bucks less. Is this supposed to motivate to start earlier, or demotivate?

]]> By: Ben Stein: Keys to Retirement Savings ? Get Rich Slowly http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82895 Ben Stein: Keys to Retirement Savings ? Get Rich Slowly Wed, 04 Apr 2007 03:14:44 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82895 [...] Rich Slowly personal finance that makes cents « Saving and Investing: The Power of Compounding | [...] [...] Rich Slowly personal finance that makes cents « Saving and Investing: The Power of Compounding | [...]

]]> By: Dylan http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82892 Dylan Wed, 04 Apr 2007 01:27:30 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82892 @ Ryan Waggoner – I hope it was the concept and not my delivery that you found dreary. Either way, you can learn more about the myth of dollar cost averaging at, http://www.fpanet.org/journal/articles/2006_Issues/jfp1006-art8.cfm. To clarify, dollar cost averaging as a deliberate strategy (bad) is when you invest part of your cash-on-hand over a period of time (i.e. You have $5,000 and invest $1,000 at a time over then next 5 months). This is different from doing it because you are investing as you earn it on a monthly basis (good). @ Ryan Waggoner – I hope it was the concept and not my delivery that you found dreary. Either way, you can learn more about the myth of dollar cost averaging at, http://www.fpanet.org/journal/articles/2006_Issues/jfp1006-art8.cfm. To clarify, dollar cost averaging as a deliberate strategy (bad) is when you invest part of your cash-on-hand over a period of time (i.e. You have $5,000 and invest $1,000 at a time over then next 5 months). This is different from doing it because you are investing as you earn it on a monthly basis (good).

]]> By: Ryan http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82865 Ryan Tue, 03 Apr 2007 19:36:18 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82865 Great post! Keep up the good work. Great post! Keep up the good work.

]]> By: Ryan Waggoner http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82863 Ryan Waggoner Tue, 03 Apr 2007 18:07:41 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82863 Just wanted to say that I'm enjoying your series. Just wanted to comment on Dylan's rather dreary (but valid) comment and ask if anyone could give me the short answer on what impact (if any) dollar cost averaging has on market volatility risk. I haven't yet crunched the numbers myself. Also, I didn't realize it was financial literacy month, but I just started a series on investing for young adults in their twenties over on my blog (shameless plug, I know). Please check it out and leave me any comments or suggestions you may have. Thanks! http://www.ryanwaggoner.com/2007/04/02/investing-for-young-adults-part-1-financial-goals/ Just wanted to say that I’m enjoying your series. Just wanted to comment on Dylan’s rather dreary (but valid) comment and ask if anyone could give me the short answer on what impact (if any) dollar cost averaging has on market volatility risk. I haven’t yet crunched the numbers myself.

Also, I didn’t realize it was financial literacy month, but I just started a series on investing for young adults in their twenties over on my blog (shameless plug, I know). Please check it out and leave me any comments or suggestions you may have. Thanks!

http://www.ryanwaggoner.com/2007/04/02/investing-for-young-adults-part-1-financial-goals/

]]> By: Dylan http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82861 Dylan Tue, 03 Apr 2007 17:14:12 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82861 Compounding annual savings at 7% can be very misleading. If you average 7% per year but are not actually getting 7% EVERY year (some years higher, some years lower like with stocks and bonds), “when” a return occurs becomes more important than “what” your compounded average. Returns are relative to the amount of money at the time of the return (i.e. the same return on a larger balance yields more dollars). If you are adding savings each year (and then eventually taking money out each year), the differences can be huge, and it is very possible to have a lower average return result in more money than a higher average based on WHEN returns happen for each. Typically, the higher the average return, the wider the range of possible one year returns (risk vs. reward). For the long-term investor, this is market volatility risk and is much more than just a “paper loss.” It can mean the difference between spending your golden years relaxing or greeting shoppers at Wal-Mart. If you don’t believe it, try it on an Excel spreadsheet. Throw down a wide range of returns that average 7%, 8%, 9%, or 10% for 10 years For example: for a 10% average return, most of the years should be between -10% and +30% with 2 or 3 years being outside that range (you can also use historical index numbers). Then add $1,000 each year, and calculate your ending balance. Compare it to using the average return number for all years. Now change the order of returns and note the differences. Try it several times, put a bull market at the beginning, then do it with one at the end. You’ll get a different answer each time, all with the same average return. Now imagine the effect over 20, 30, or 40 years or with larger contributions. Try it with withdrawals too. Compounding annual savings at 7% can be very misleading. If you average 7% per year but are not actually getting 7% EVERY year (some years higher, some years lower like with stocks and bonds), “when” a return occurs becomes more important than “what” your compounded average. Returns are relative to the amount of money at the time of the return (i.e. the same return on a larger balance yields more dollars).

If you are adding savings each year (and then eventually taking money out each year), the differences can be huge, and it is very possible to have a lower average return result in more money than a higher average based on WHEN returns happen for each. Typically, the higher the average return, the wider the range of possible one year returns (risk vs. reward).

For the long-term investor, this is market volatility risk and is much more than just a “paper loss.” It can mean the difference between spending your golden years relaxing or greeting shoppers at Wal-Mart.

If you don’t believe it, try it on an Excel spreadsheet. Throw down a wide range of returns that average 7%, 8%, 9%, or 10% for 10 years For example: for a 10% average return, most of the years should be between -10% and +30% with 2 or 3 years being outside that range (you can also use historical index numbers). Then add $1,000 each year, and calculate your ending balance. Compare it to using the average return number for all years. Now change the order of returns and note the differences. Try it several times, put a bull market at the beginning, then do it with one at the end. You’ll get a different answer each time, all with the same average return. Now imagine the effect over 20, 30, or 40 years or with larger contributions. Try it with withdrawals too.

]]> By: Dave http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82858 Dave Tue, 03 Apr 2007 16:28:23 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82858 Ben Stein just wrote a new article for Yahoo Finance that ties in beautifully w/ today's post on Saving and Investing ... http://finance.yahoo.com/expert/article/yourlife/27943 Ben Stein just wrote a new article for Yahoo Finance that ties in beautifully w/ today’s post on Saving and Investing …

http://finance.yahoo.com/expert/article/yourlife/27943

]]> By: DC Economist http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82857 DC Economist Tue, 03 Apr 2007 16:03:21 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82857 I really like this guy JD. In fact, Im prolly going to buy the book for my fiancee so she can start to understand what I have been talking to her about. I really like this guy JD. In fact, Im prolly going to buy the book for my fiancee so she can start to understand what I have been talking to her about.

]]> By: MillionDollarJourney.com http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82854 MillionDollarJourney.com Tue, 03 Apr 2007 15:05:40 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82854 Another great post J.D. FT Another great post J.D.

FT

]]> By: Wesley http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82852 Wesley Tue, 03 Apr 2007 14:56:01 +0000 http://www.getrichslowly.org/blog/2007/04/03/saving-and-investing-the-power-of-compounding/#comment-82852 Dang, exhibit G sure is an eye-opener! I haven't seen one of those graphs following credit charges in quite a while...I wish those were plastered in more places. This guy seems like a straight shooter. I understand compounding, and I'm looking forward to the next entries. There are several subjects he's going to cover that I likely don't understand as well. Good stuff! Dang, exhibit G sure is an eye-opener! I haven’t seen one of those graphs following credit charges in quite a while…I wish those were plastered in more places.

This guy seems like a straight shooter. I understand compounding, and I’m looking forward to the next entries. There are several subjects he’s going to cover that I likely don’t understand as well. Good stuff!

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