0947: “Investing”

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deskjethp
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Re: 0947: “Investing”

Postby deskjethp » Mon Sep 05, 2011 9:32 am UTC

Yeah that's so true right now... what with interest rates being .00xxx% in banks around town ..
A lot of ATMs in the US charge some ridiculous pointless fee like $3.00 for a Bank of America ATM usage under certain circumstances. $3.00 would buy me a good meal. There's a ton of free ATMs though too.

So now it is not good to invest in:

US dollars
banking
stocks [high volatility markets these days - too high risk]
US bonds [1.99% for 10 years? pffft]
Europe

So what to do? Oil? Water? Real Estate? China?
Land is "cheap" right now but the capital required is significant.
"Cheap" oil runs out x years from now.
China is in an economic bubble. [be a good bubble end guesser?]
Water doesn't seem like its that dire ... yet...

Lottery tickets? :|
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Mirkwood
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Re: 0947: “Investing”

Postby Mirkwood » Mon Sep 05, 2011 10:02 am UTC

I'd say investing in stocks is actually a pretty nice idea right now. The market as a whole is down, but that doesn't mean everything is risky---now, you the opportunity to buy cheap stock that really doesn't have all that much risk attached. When the market gets back to it's normal point (or it's high, if you're willing to risk more), you can make a decent profit. When the market is bad, it's a nice time to go browsing the stocks. (Of course, when the market is bad, the amount of money you have to invest tends to be, too.)

functoruser
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Re: 0947: “Investing”

Postby functoruser » Mon Sep 05, 2011 10:39 am UTC

mister k wrote:Really? None? As long as my ATM charges me money... which most don't. At least they don't in the UK, anyway, which I assume is where everyone lives.

Unfortunately, in the U.S., almost every bank charges a fee to use their ATM to remove funds from another bank. So, if you use an X Bank ATM to remove funds from your checking (current) account at Y Bank, X Bank will typically charge you $2 for the privilege.

There are ways around this, though. You could stick with only using your bank's ATMs. Or, you could bank with a credit union and only use credit union ATMs. (Most credit unions seem to allow other credit unions' customers use their ATMs for free.) Or, you can just get cash back at a store when you pay with a debit card.

(My credit union is awesome and actually refunds the ATM fees charged by other institutions, so I haven't worried about this problem for a while.)

Blitzkrieg
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Re: 0947: “Investing”

Postby Blitzkrieg » Mon Sep 05, 2011 10:53 am UTC

The way I look at it, even if my investment does not beat, or barely beats inflation, I still possess the money I save.

If in the next year my car dies (as it looks like it probably will), and I have money saved up, it is money I that don't need to borrow from the bank to buy a new(er) car, and I think car loans are around 7.5% interest.

Also, saving money is not always about investing in the stock market, but debt reduction. If my mortgage is at 5.8% and I pay extra each month to lower the principal, then it is like I am getting a 5.8% return on the extra money I am putting in (assuming there is no prepayment penalty). In the meantime I am building up equity that I can borrow against in the future if I needed to, or to buy another house and rent one of them to tenants. Really, the only limit to an investment is your imagination.

Either way, saving money would have given me more options for investing and borrowing then I otherwise would have, and a degree of financial independence from banks.

miraclef
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Re: 0947: “Investing”

Postby miraclef » Mon Sep 05, 2011 11:32 am UTC

Matt228 wrote:I registered just to point out that 1,219 looks a lot like 1,279 when hand written. This is the reason I cross 7s.


There's no excuse not to cross your sevens but look at how he normally writes "1".

I still don't understand how Randall got something wrong kids are taught at age 14...

Joneleth
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Re: 0947: “Investing”

Postby Joneleth » Mon Sep 05, 2011 11:33 am UTC

neoliminal wrote:In fact, there's almost no scenario where putting money into a bank makes any sense.


No, there's no scenario in which *investing* money in banks makes any sense. I use my bank card multiple times a day, and I keep $5,000 in my savings account, with another $1,000-$3,000 in my checking account. (it varies between when I get paid and when I make investments) I like having money on hand to fix any smaller expenses that come up that insurance doesn't cover. (i.e, my transmission dies, or I buy a new TV/grill/computer/whatever) I really don't want to go through the trouble of liquidating some of my stock or getting a loan to cover it.

On the other hand, buying stock, especially using mutual funds if you're not very market savvy, is a great idea right now. Over the past 2 years I've bought a little over $50,000 in stock, and my total returns have been... -$200. Ouch. But that's $50,000 of stock that I own, and if the market improves even marginally in 10 years, it (along with whatever I buy in the meantime) will be worth a lot more. If the market stays in this recession, then hey, I'll still have most of my money to spend on other things then. Like kids or dentures or whatever old people buy.

I see it as my chance to secure financial independence later in life. I'm by no means wealthy, I simply have no debt, no family, few expenses, and no incentive to buy a TV larger than 24", jeans that cost more than $30, or a used car worth more than $5,000. I could spend my extra income on meaningless crap I don't really want (which I see a *lot* of my single coworkers doing, driving muscle cars and wearing expensive clothes), or I could live like I do now with the hopes of retiring in my 40s.

I realize that's a harder choice to make for people who might actually derive a lot of pleasure from the more expensive things in life, but if you're a nerd like me with relatively simple hobbies, the path seems pretty clear.

Joneleth
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Re: 0947: “Investing”

Postby Joneleth » Mon Sep 05, 2011 11:45 am UTC

Something else to consider, what if there's another recession and I end up being unemployed for 3 or 4 years? What if I have kids to support? I'd rather live off of my liquidized savings than, say, selling my house and car and pawning my furniture and moving my (theoretical) family into my parents basement for those years. This is a horror story that has become reality for many American families, I'd rather not be one of them next time around.

miraclef
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Re: 0947: “Investing”

Postby miraclef » Mon Sep 05, 2011 12:03 pm UTC

Jyrki wrote:The problem is that a decade is too short a time to show the nature of the asymptotics. If the population of the Earth keeps growing at the rate of 2% per year, in a few dozen millennia the volume of human flesh, if collected together in a single ball, will have a radius growing at the speed of light. I leave finding the exact figure as an exercise to the interested reader :twisted: In your face, Pope.


Not true!

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KShrike
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Re: 0947: “Investing”

Postby KShrike » Mon Sep 05, 2011 12:46 pm UTC

Darn it, Randall!
Why'd you have to say this in public?

I wanted the advantage of knowing this myself...
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Re: 0947: “Investing”

Postby ChurchSkiz » Mon Sep 05, 2011 12:52 pm UTC

meh wrote:I find the people who talk about the reliable 8% investments charming, after the recent crash. A lot of my savings were in funds averaging about 8%. Up to 2008. It really, really depends on which 30 years or so you're talking about, and when during that period disaster strikes.


Unless you threw your money into the account in late 2007, the crash just confirms 8% is a good historical average. Within 2 years the market was at 90% of its peak value. When you consider dollar cost averaging, and the fact that any additional funds you invested in late 2008 & 2009 had high double digit gains, over the long run the stock market still makes sense.

In 2008 after a 38% drop, the average annual return of the S&P 500 since inception was around 10%. That included 4 pretty decent market crashes and didn't include the rebound in 2009/2010. Unless you plan on buying high and selling low over the short term, 8% is a reasonable expectation over the period of 50 years. Yes you're going to lose money in some years, you might even lose a lot of money some years. But then there will be years like 2009 where you will see 30% growth.

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Re: 0947: “Investing”

Postby Frankie » Mon Sep 05, 2011 1:00 pm UTC

iChef wrote:Better off finding a nice fund that averages around 8%

Umm... I must presume that you stopped looking at actual market returns 5+ years ago, and/or you are seeking to restart Bernie Madoff's fund.

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Re: 0947: “Investing”

Postby cellocgw » Mon Sep 05, 2011 1:13 pm UTC

josiahstevenson wrote:related: I hate it when people say something increases "exponentially" when they mean something more like "dramatically". As in this situation, exponential growth need not be very dramatic.

The mathematical justification is that, sooner or later, and exponential curve will kick the ass of a polynomial curve. It just may take a while.
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cellocgw
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Re: 0947: “Investing”

Postby cellocgw » Mon Sep 05, 2011 1:14 pm UTC

augurey wrote:Who considers a savings account investing? At 8% you're at 2,158 after 10 years -- more if you reinvest your dividends.

Sounds good. Now go find me a fund that's averaged 8% (and that is PLUS 8 %) over the last 10 years.

scottywan82
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Re: 0947: “Investing”

Postby scottywan82 » Mon Sep 05, 2011 1:18 pm UTC

It's all been said, but.... Yeah, investing is really a good thing and so is compound interest. Especially since your money increases for absolutely NO EFFORT on your part.

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Re: 0947: “Investing”

Postby waltwhitmanheadedbat » Mon Sep 05, 2011 1:28 pm UTC

Frankie wrote:
iChef wrote:Better off finding a nice fund that averages around 8%

Umm... I must presume that you stopped looking at actual market returns 5+ years ago, and/or you are seeking to restart Bernie Madoff's fund.


Bernie promised an awful lot more than 8%, and that's why he was able to attract investors - because they were aware that they could get 8% in the market.

If you average into a series of positions or a diversified fund over a period of years, it's very likely that you'll make money in stocks, and really the best time to invest a lump sum is now - when everyone is hysterical. If you have your living expenses covered for months or years out, you should probably be looking at getting into stocks.

While I'm at it, you might want to look at companies like Berkshire Hathaway who knew what they were doing throughout the recession: http://www.google.com/finance?q=NYSE%3ABRK.B

Granted a 5% average return if you bought ten years ago to the day, but that's an example of a company that effectively acts like a mutual fund, and if you'd like a look at the shareholder letters the chairman justifies every single purchase.

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Re: 0947: “Investing”

Postby Apeiron » Mon Sep 05, 2011 1:34 pm UTC

In an economy with fractional reserve lending at interest where private banks can print money at will... savers are losers.

Inflation is around 8%. Don't believe the politician figures, they've been rigging the numbers for a while now to make things seem less bad.

Any investment that pays less than inflation is NOT an investment. It's a safe where your money fizzles away value like an isotope. For it to be an investment, it must BEAT inflation. Savings and checking accounts don't even match inflation. By the way, if your raise this year isn't at least 6% you took a pay cut.

Any investment that beats inflation must entail risk. No one is going to help you beat inflation for free or without risk. This is one of the terrible problems with our monetary policy... it goads people into taking risks with their money.

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Re: 0947: “Investing”

Postby waltwhitmanheadedbat » Mon Sep 05, 2011 1:41 pm UTC

Apeiron wrote:Inflation is around 8%. Don't believe the politician figures, they've been rigging the numbers for a while now to make things seem less bad.


What method are you using to measure inflation here? There's definitely no way CPI inflation is 8% this year.

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SirBryghtside
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Re: 0947: “Investing”

Postby SirBryghtside » Mon Sep 05, 2011 1:44 pm UTC

Theory: Randall is fully aware his comic is wrong, and made a deliberate mistake to troll all of the mathematicians of this site.

Hey, it worked :P
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TaylorP
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Re: 0947: “Investing”

Postby TaylorP » Mon Sep 05, 2011 1:50 pm UTC

SirBryghtside wrote:Theory: Randall is fully aware his comic is wrong, and made a deliberate mistake to troll all of the mathematicians of this site.

Hey, it worked :P


I would not be surprised. :)

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AvatarIII
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Re: 0947: “Investing”

Postby AvatarIII » Mon Sep 05, 2011 2:06 pm UTC

deskjethp wrote:Yeah that's so true right now... what with interest rates being .00xxx% in banks around town ..
A lot of ATMs in the US charge some ridiculous pointless fee like $3.00 for a Bank of America ATM usage under certain circumstances. $3.00 would buy me a good meal. There's a ton of free ATMs though too.



i seem to remember it being much more like that in the UK when i was a kid, but at some point some banks mostly cooperative ones, (more traditionally known as Building Societies) stopped charging for ATM use, then within a few years none of them charged any more, the only ones that charge these days are the freestanding privately owned type you get in shops or bars,

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Re: 0947: “Investing”

Postby nlitchfield » Mon Sep 05, 2011 2:19 pm UTC

waltwhitmanheadedbat wrote:
Frankie wrote:
iChef wrote:Better off finding a nice fund that averages around 8%

Umm... I must presume that you stopped looking at actual market returns 5+ years ago, and/or you are seeking to restart Bernie Madoff's fund.

While I'm at it, you might want to look at companies like Berkshire Hathaway who knew what they were doing throughout the recession: http://www.google.com/finance?q=NYSE%3ABRK.B

Granted a 5% average return if you bought ten years ago to the day, but that's an example of a company that effectively acts like a mutual fund, and if you'd like a look at the shareholder letters the chairman justifies every single purchase.


Just the 15% fall so far this year then.... and 8% over the last 5. I like Warren Buffet a lot, but an awful lot that is written about him doesn't understand regression to the mean or indeed his reliance on a relatively few core investments plus a personal reputation. The other question I'd ask is - in ten years time (the timescale suggested here) Buffet will be 91. Want to bet on him still being at the helm of BH then? Or BH still maintaining the growth of the 2000s in a different economic environment.

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Maxpm
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Re: 0947: “Investing”

Postby Maxpm » Mon Sep 05, 2011 2:20 pm UTC

miraclef wrote:
Matt228 wrote:I registered just to point out that 1,219 looks a lot like 1,279 when hand written. This is the reason I cross 7s.


There's no excuse not to cross your sevens but look at how he normally writes "1".

I still don't understand how Randall got something wrong kids are taught at age 14...


Handwriting isn't something you can "get wrong." One's handwriting might be messy and ambiguous, sure, but it's not "wrong."

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Re: 0947: “Investing”

Postby intruder313 » Mon Sep 05, 2011 2:28 pm UTC

On the earlier subject of ATMs I remember when this was introduced over there and shortly afterwards the banks here were colluding to introduce it the UK.

We Brits are good at polite and orderly queueing and hate the idea of paying a fee to get at our own money so we just said "If you introduce such a fee we will go back to queuing up inside the banks to withdraw our cash".

I don't think any of the banks introduced charges on their machines. There's a few independent ATMs and some banks might charge if you are not one of their customers but I've never, ever paid a fee to draw out my own money.

I will walk further the avoid one that charges!

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Re: 0947: “Investing”

Postby waltwhitmanheadedbat » Mon Sep 05, 2011 2:41 pm UTC

nlitchfield wrote:Just the 15% fall so far this year then.... and 8% over the last 5. I like Warren Buffet a lot, but an awful lot that is written about him doesn't understand regression to the mean or indeed his reliance on a relatively few core investments plus a personal reputation. The other question I'd ask is - in ten years time (the timescale suggested here) Buffet will be 91. Want to bet on him still being at the helm of BH then? Or BH still maintaining the growth of the 2000s in a different economic environment.


I'm not sure what will happen to Berkshire after Buffett retires. Even if an idiot steps up to manage it in ten years, I'm not sure if the position of BRK will be any worse. It'll still own businesses diversified over a variety of sectors and it'll still be sitting on piles of cash from it's insurance operations, very likely.

It's worth noting, and I'm sure you've noticed, that the 15% fall is related to this recent hysteria. We'll be looking at a slightly higher rate when that corrects itself.

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Re: 0947: “Investing”

Postby SolkaTruesilver » Mon Sep 05, 2011 2:46 pm UTC

neoliminal wrote:Remember that when you invest you are loaning the bank money.

The bank then loans that money to someone who is willing to pay them more than they will pay you.

For example, when you invest in a bank you may get 2% interest while the bank will happily charge you 26% on your credit card (plus fees). Then if you want to take your money out of an ATM to buy, say, $100 worth of 'fun', the ATM fee will be $2, or 2%. Thus you've lost your initial investment by putting it into a banking system with an ATM that charges $2.

In fact, there's almost no scenario where putting money into a bank makes any sense.


The whole point of the bank is to use it to facilitate your financial transaction. Withdrawing money, cashing cheques, getting credit, administrating a mortgage and linking your investments to your bank accounts.

Think of the bank as the UI of your financial avatar. Just because Windows offer a paint utility doesn't mean you should stick with it. In the same idea, don't use your bank to manage your money if you want to be remotely serious.

Banks are essential because they provide the easy access to the financial world to retails and small enterprises. And I hate them so much when they go beyond that mandate and end up bankrupting 'cause they wanted to go for the extra $ by bad risk management.

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Re: 0947: “Investing”

Postby Jyrki » Mon Sep 05, 2011 3:18 pm UTC

miraclef wrote:
Jyrki wrote:The problem is that a decade is too short a time to show the nature of the asymptotics. If the population of the Earth keeps growing at the rate of 2% per year, in a few dozen millennia the volume of human flesh, if collected together in a single ball, will have a radius growing at the speed of light. I leave finding the exact figure as an exercise to the interested reader :twisted: In your face, Pope.


Not true!


Assume currently 7 billion people averaging 70 kilos or 0.07 cubic meters. The current volumn of mankind is thus 0.49 cubic kilometers or a ball of radius[imath]R(0)= 0.49[/imath] kilometers. If we assume compound growth of 2% year we get that the volume will in t years be [imath]V(t)=V(0)e^{2t/100},[/imath] where[imath]V(0)[/imath] is the current volume. The radius of that ball is proportional to its cubic root, so it is [imath]R(t)=R(0)e^{2t/300}.[/imath] The derivative of that is (in kilometers per year) [imath]R'(t)=\frac1{150}R(0)e^{2t/300}.[/imath] The speed of light is [imath]c=9.46*10^{12}[/imath]kilometers per year. [imath]R'(t)>c[/imath], when [imath]t[/imath] is at least 5341. Ok, so I was off, and it only takes 5 millennia and some.

A ballpark figure can be derive as follows. The current rate of growth of that ball is a bit more than 1 meter/year. The population is doubled every 35 years, so the radius of that ball is doubled in every 3*35=105 years. Therefore also the rate of growth (in meters per year) is doubled once per century. So in ten centuries the rate of growth would be 2 to power of ten meters per year, or 1 kilometer per year. In 2 millennia the rate of growth would be 1000 kilometers per year, in 5 millennia it would be 1000 000 000 000 kilometers per year, and that is already about 0.1 c.

Ok, so ijuin's slide rule proves that mankind would have collapsed into a black hole long before that :) The resource on our planet/solar system/nearby space would have been depleted before that. Be fruitful and multiply.

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Someguy945
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Re: 0947: “Investing”

Postby Someguy945 » Mon Sep 05, 2011 3:20 pm UTC

The number one key to a lucrative retirement is to save tons and tons of money.
The next most important thing is to start early. Age 20-25 is a great time to begin socking away some cash in an IRA or 401k.

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Re: 0947: “Investing”

Postby iChef » Mon Sep 05, 2011 3:22 pm UTC

To all you chicken littles who are saying 8% is impossible and there is no way to beat inflation you are investing on the wrong timescale. I have been investing more money the last couple of years because the market is low. Sure I lost the money I had been investing since 2004, but that money isn't gone forever. I still own the shares, they just lost value. They can gain value just as easily. I am not looking to cash out for at least another 30 - 40 years. By then the market will probably have crashed and recovered a couple more times. There are still plenty of safe places to invest, just do a little research and invest in things you know about. I personally invest in food companies. While I'm sure many of you will wail and gnash your teeth on hearing this, my Monsanto stock has made me a good bit of money in the last 5 years.
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SEE
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Re: 0947: “Investing”

Postby SEE » Mon Sep 05, 2011 3:44 pm UTC

RAGBRAIvet wrote:Does this mean that Douglas Adams was wrong, and I won't be able to afford my dinner at Milliways?

No, because the end of the universe is more than 2,000 years distant.

Assuming no confounding factors (bankruptcies, inflation and revaluations, bank rounding/minimum balances, etc.), mere 1% interest annually compounded will grow a 1¢ deposit to $4,392,829.43 after 2000 years. It just won't be appreciably more than 1¢ after ten years.

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Re: 0947: “Investing”

Postby rcox1 » Mon Sep 05, 2011 4:09 pm UTC

A few things. First, I find that most financial analyst do not really push the inflation thing when selling. In this case, with 2% interest, $1000 increases to about $1300 over 10 years. However, due to inflation the buying power of the $1300 is likely to be less than the original $1000.

Second the fluctuations in the DJI and the S&P do not necessarily reflect the reflect the economy except perhaps in the sense of a self fulling prophecy. Putting money in funds that link to the DJI or S&P is not investing, it is gambling. It is gambling that the firms that make up the fund are stable enough to be 'safe'. The same is true for gold. Real investing is looking at firms and the tangible behind the firms to see which will produce value and profits. This does produce income for the savvy investor even when the 'market' is down.

Third, it seems people tend to confuse investing and generating short term cash flow. For instance, a house or a car is an investment in capital equipment that we need to live. It can be a wise investment, but can also put people at a negative net worth. In many cases I see this caused by the desire to generate immediate positive cash flow instead of letting the property stand as an investment. For instance, I know one person who bought more house than they needed because they were going to the $8000 tax credit from the fed. This lead to paying more than the house was worth. We all know someone who paid more than the house was worth with the belief that home prices would always rise, and that could be liquidated to generate cash.

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Re: 0947: “Investing”

Postby Scott Auld » Mon Sep 05, 2011 4:34 pm UTC

Wow, and this whole time I thought Randal was pretty smart. He really doesn't get the power of compound interest??

a) 2% is lousy. A conservative retirement investment aims for 10% averaged over the long haul. You have down years and up years but over the 40 years of investing you aim for 10%.

b) Randal ignores continuous contributions, usually every payday.

c) He works with a decade to make his point?? Seriously?

If I start contributing $200 a month to a retirement fund that earns 10%APR compounded annually:
in 10 years, although I have only contributed $24,000 I have $42,000.
In 30 years, although I have only contributed $72,000, I have $430,000.
In 40 years, although I have only contributed $96,000, I have $1.1 Million.
(numbers rounded)

I have to re-evaluate my previously-high respect for XKCD. Seriously.

Or maybe he's just trolling this forum now. That actually makes sense.

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Re: 0947: “Investing”

Postby hujackus » Mon Sep 05, 2011 4:52 pm UTC

glasnt wrote:I'm getting $1,219 <_<

It's been ages since I've done compound math ("And yet you'll use it every day in adult life!") but my excel spreadsheet confirms.

Also, thirdparty compound interest calculator agrees with me.

http://i.imgur.com/5vSX1l.jpg


An interest rate of 2.47% would produce the $1,279 mentioned in the comic. I would guess the 2.47% was rounded down to 2% for simplicity.

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Re: 0947: “Investing”

Postby Tirian » Mon Sep 05, 2011 5:24 pm UTC

Scott Auld wrote:Wow, and this whole time I thought Randal was pretty smart. He really doesn't get the power of compound interest??


:| Are you under the assumption that every character speaks for Randall? I think he makes a good point that the Rule of 72 had more of an impact on me when I learned it in the middle of the economic cycle than it would to people who are learning it here at the bottom and it would take 35 years to double your original principal.

I also have never understood why people go so far out of their way to attribute every sensible idea in every field of study to Einstein, especially when there's no actual evidence that he ever said such a thing whereas Benjamin Franklin did a pretty snazzy job of proving that compound interest works over the long haul.

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Re: 0947: “Investing”

Postby Chrisfs » Mon Sep 05, 2011 5:51 pm UTC

Interest takes a while to get going and 2% isn't much, but that 2% happens without you having to do anything, and it never takes a weekend or a holiday and never has a bad month in which you lose 8%. Treasury bonds and CD are like the small constant drips of water that wear away rock over many many years.

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Re: 0947: “Investing”

Postby JustDoug » Mon Sep 05, 2011 6:03 pm UTC

josiahstevenson wrote:related: I hate it when people say something increases "exponentially" when they mean something more like "dramatically". As in this situation, exponential growth need not be very dramatic.


That's because it's a very, very small exponent. Those take a while to build up a good head of steam.

Chrisfs
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Re: 0947: “Investing”

Postby Chrisfs » Mon Sep 05, 2011 6:08 pm UTC

Wow, you missed the point of the Alt-text. Maybe you shouldn't rely on webcomics for your investment advice. This a strip on compound interest not retirement planning.

Having said that , he used a interest rate very close to a current 10 Year Treasury bond (hence the 10 years). He likely did so because then he can ignore any possible flucuations in the markets, all one need to calculate is the end point.

A conservative retirement investment is 10% over 40 years? Good luck with that. If you define conservative to be avoiding 'risky' investments (one with big swings, like most popular stocks), there is practically nothing that will give you 10% over 40 years. The S&P 500 may give you 10% (6-7% after inflation), but the deviation is such that you need to hope you get to retire in an 'up' period as recent years clearly show. If you go with the traditional definition of conservative in financial consumer literature, bonds and cash, you aren't going to get 10% over 40 years.


Scott Auld wrote:Wow, and this whole time I thought Randal was pretty smart. He really doesn't get the power of compound interest??

a) 2% is lousy. A conservative retirement investment aims for 10% averaged over the long haul. You have down years and up years but over the 40 years of investing you aim for 10%.

b) Randal ignores continuous contributions, usually every payday.

c) He works with a decade to make his point?? Seriously?

If I start contributing $200 a month to a retirement fund that earns 10%APR compounded annually:
in 10 years, although I have only contributed $24,000 I have $42,000.
In 30 years, although I have only contributed $72,000, I have $430,000.
In 40 years, although I have only contributed $96,000, I have $1.1 Million.
(numbers rounded)

I have to re-evaluate my previously-high respect for XKCD. Seriously.

Or maybe he's just trolling this forum now. That actually makes sense.

RogueCynic
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Re: 0947: “Investing”

Postby RogueCynic » Mon Sep 05, 2011 6:53 pm UTC

I only skimmed the replies, has anyone factored in income taxes on the interest? Also, iirc, the formula for calculating interest earned is: principle + [(principle * interest rate) raised to the power of interest rate divided by the term, ie number of months]. No one mentioned the division. Or is that simple interest?
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rgm
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Re: 0947: “Investing” - $1221.40

Postby rgm » Mon Sep 05, 2011 7:06 pm UTC

http://www.wolframalpha.com/input/?i=1000+dollars+compounded+continuously+at+2%25+after+10+years&asynchronous=false&equal=Submit

Wolfram Alpha shows me $1221.40. As an aside, their natural language processing is amazing. In order to get $1,279 the interest rate would have to be about 2.4608%.

astrosteve
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Re: 0947: “Investing”

Postby astrosteve » Mon Sep 05, 2011 7:08 pm UTC

This comic (and also several of the replies in my thread) reminds me so much of my mother. She's probably the most stubborn person I've ever met in my life when it comes to investing. She'll only put her money in something that's guaranteed to not lose money. (Right now she has roughly 15k in a savings account paying .75%, and several thousand more in a few CDs with interest rates between 1% and 3%) and if you suggest anything that has any chance of losing her money (no matter how small) she'll tell you straight to your face you're an idiot who doesn't know how to invest money, and if you're going to open yourself up to any kind of loss, you mind as well go to a casino and gamble it all. (And yes, she'll use the word idiot.)

Anyway, the point is this: She'd much rather have the 2% in this comic than something with risk. She'd rather not be getting any interest at all than be taking any kind of risk, for that matter. (Her and my father, who'd invest in stocks and bonds, etc when he was alive would get into constant arguments over investing. As soon as he died, she pulled every cent out of anything with any kind of risk that he'd invested in, all the while complaining about what an idiot he was.)

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rhomboidal
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Re: 0947: “Investing”

Postby rhomboidal » Mon Sep 05, 2011 7:49 pm UTC

Yes, compound interest is a great way to make money -- for buying lottery tickets.


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