Example:Wayne Taylor (#1) has a hundred apples.
Peter Taylor (#2) wants those apples.
Peter tells wayne that he will pay him 10% a year (compounding) for use of his apples.
Y=Year
E=Apples earned at 10%
T=Total amount of apples
Y ...E... T
1 ...10... 110
2 ...11 ...121
3 ...12 ...133
4 ...13 ...146
5 ...15 ...162
So after 5 years, what does Wayne have?
Wrong.
He has a crate of ROTTING APPLES! 162 to be exact. But he would only have 150 rotten apples had it not been compounded. However, as an uneducated investor, he never looked into what Peter was doing with his apples.
Peter baked PIES!
The first year, he made 10 pies.
Second year, he used his profit and made 20 pies.
Third, he made 40 pies.
Fourth, 80 pies.
Fifth, he made 160 pies!!!!!!!
At the end of five years, Peter had a thriving pie business, and paid Wayne back in rotten fruit that was unsuitable for pies.
And That's how compound interest works from BOTH sides!!!
Peter Taylor - Eats apple pie like it ain't no thaaaaaaaang
11 comments:
Now I eat humble pie.
But seriously, don't put all of your apples in one pie.
There is some insight into this post: You don't invest your money into money really... that's like hiding it in the bank, where it basically rots.
If you invest into something and you turn your money into commodity (stock, real estate, pie) and then it can be tailored to the sustainability and specifics of a market without suffering the necessary draw backs of trying to say something in fancy words.
Uh, so you should make pie. Ask Peter. Peter Pie Eater.
Apples can be made into juice, or pie, or apple sauce, which can hit a different market, which might be better.
All I can think about now is pie. Ignore what I said, and take a break and eat pie, and sometimes that's what it takes to make the right decision.
Starting businesses is fun and all, but I fear you may have been distracted by your stomach. Maybe Moxy Fruvous was right in that we shall all, like the King of Spain eat humble pie.
Of course the point is, compounding interest takes an initial investment and grows it exponentially. Eventually, you make money faster than you can possibly spend it. Of course that takes 60 years or so.
First, I find T2 to be once again arrogant and condescending. But that ain't no thaaaang for him. He wears it like a badge.
But I can tolerate it because he produces good video and humour that I can relate to. And we share the same last name so there must be some pearl hidden within the rotten, stinkin' good for-nuttin' solo-investin' clam. Don't take it personal, Taylor. It's all for character growth. Taylor sharpens Taylor..you know. Scriptural.
I agree with both of you. I think the bank is a scam. However, I didn't get a chance to do my long-awaited post about the comparison between the loan and loaner systems. Maybe I should ask Taylor 2, because he's quite the loner. I mean, if there were him, a professional investor and a palm tree stuck on a deserted island, and the professional investor said 'If you invest your coconut with me, we'll be off this island tomorrow', he'd grab all the coconuts and say 'Mine! Mine!" like the seagulls in Finding Nemo.
But it ain't no thaaaang, chickidee.
I'm done my caustic and senseless insult round. I felt like I had to make up for lost time or something.
Summary: 60 years? Yeah. If what is compounding is too small. So, make more money so it compounds faster. Duh. How do you do that? Business. Ain't gonna do it working for the man. Working for the man is a good way to get a downpayment on a business to get you away from workin' for the man, though.
Nice summary eh?
No, I didn't spout 60 years for the fun of it. Have a look at a retirement calculator, and you'll see that for any amount to grow exponentially it takes 60 to 90 years. You see the graph starts at the left, climbing slowly, picking up speed, going up the mountain, then, eventually it shoots straight up at an alarming rate.
Oh, and on an unprofessional note, I wouldn't trust no advisor with my coconuts.
I don't have 60 years. That would make me 90. I do, however, have 5 years, so, explain to me what the difference would be if I drop $750,000 PV (that's 'present value' for the un-skooled) in a savings account in 2068 and start let it compounding... or if I let a smaller amount compound for 60 years until it reaches $750,000 in 2068. Unless that formula is wrong (FV=PV(1-i)n), then the most important thing is PV and N. If I increase PV then I can shorten N and get the same FV. There is no reason to wait 60 years. So, what we need to do is maximize our PV now (apple pie selling), and make sure that we start simultaneously benefit from the compounding (apples on apples).
There are too many people who need our help to wait 60 years! I mean...poop. I need my help!
Your impatience is going to kill you. What I'm getting at here is that ppl put money into an rrsp for 30 years, then spend it at retirement. What Joe, you and I realize is that you need a more proactive approach, or a cryogenic freezing chamber. That's why every morning I still wake up and bust my chops flingin drywall. I ain't found the secret.
All I'm getting at is that if money is going to work on it's own in some sort of growth plan, it takes a long time for it to be truly fruitful.
https://www.vancity.com/MyBusiness/Tools/Calculators/SavingsCalculator/
Try any amount in this savings calculator, and you'll see that between 50 and 60 years is when it starts supporting itself.
First of all, that little java calculator is great! If you'd post more useful stuff like this I might actually read what you write more often. What's cool is that it ties in perfectly with that post I haven't written (but talk about so much).
It is also true this weird 60 year curve. All it really shows, though, is that if you put any amount in and walk away (not contributing to the principal) that it starts to fly away after 60 years. So, I think we're both right - you, in that it takes 60 years on its own and me, in that we have to do something different than pick our butts and wait 60 years.
piece out.
Since that last post, I decided to try my random $750,000 sample, and, thanks be to God, the Creator of the world and all therein, I chose the perfect numbers and didn't have to waste any time. The thing defaults to 8% in case it ever changes between this post and when someone else tries it.
Plug in $750,000 for 5 years.
Then plug in $10,000 for 60 years.
The results are almost the same.
So, our choice is to put 10K in and spend the rest of our lives making sure it keeps compounding perfectly on our scale, or, we make a wack more money fast and cut the time way down...to like 5 years.
So, we have to all make $750K between now and 2013 (each) and then we can chill out a bit for 5 years (not touching the principal) and we're golden.
Got enough drywall?
I actually entered 0 money down and 100 bux a month, then I tried 1000 a month and either way it rockets at the same time as one lump sum.
What's with this $750'000 you keep talking about? Why do I need it by 2013 and why am I taking 5 years off of work?
Where do you get all these numbers? dreams? dice? magic 8 ball?
Sorry? I hear a voice... it's coming from your general direction...wait... it's not a voice.. it's just the squeaking of my shoe...or is it the wailing of the cat or baby next door? It's hard to differentiate these days, T2. So much squawking in such a short span of time.
My numbers are rock solid. Built on years of research and industry standards. See this link for more info on where I get my stuff.
Until then, keep up the hard work, gentlemen.
Haha poop. you so funny. Now, why am i saving 750'000? Why am I taking 5 years off work? And why is this all taking place in 2013?
Have you been consulting with aliens again, or was it that nymph in your dream?
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