So, I'm not sure if I got my numbers right, but my parents were talking about this 'dilemma' some lottery winner was having - she couldn't decide whether to take 17 million up front or 1 million per year for the next 25 years.
Being the accredited investor that I am, I immediately started thinking about compound interest... ok. I'm not an accredited investor but Master Song insists that I master compound interest...but anyways, here are my findings. Follow along as I learn:
a mill/year for 25years (investing at 3.4%)
year 1 - 1,000,000
year 2 - 2,041,364.37
year 3 - 3,083,108
year 4 - 4,139,150
year 5 - 5,209,687
year 6 - 6,294,918
year 7 - 7,395,044
year 8 - 8395044
year 9 - 9,640,803
year 10- 10,786,853
year 11 - 11,948,633
year 12 - 13,126,359
year 13 - 14,320,250
year 14 - 15,530,527
year 15 - 16,757,416
year 16 - 18,001,145
year 17 - 19,261,945
year 18 - 20,540,050
year 19 - 21,835,697
year 20 - 23,149,128
year 21 - 24,480,586
year 22 - 25,830,319
year 23 - 27,198,578
year 24 - 28,585,617
year 25 - 29,991,694
So there you go. If she really sucked, she'd make 10 million dollars just in interest. Just leaving it in the bank.
So, she lost 30 million minus 17 million for a total of 13 million.
But... the argument was that she could take the 17 million and do some rocking and rollin' style investing at much more than 10% ROI.
Thoughts?
B.L.I.P. Heros
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4 comments:
Duderama, You didn't crunch the other numbers for 17 mil. At 4% (which is what all banks are offering) you would have 45 million after 25 years.
However, That particular lady that won is quitting her job to "travel the world, see the pyramids and pay off my families mortgages"
So no one has taught her these principles. In fact, her boyfriend walked off the job as soon as he got the news, so you can't tell me she won't be handing out her resume in 10 years.
Oh. 45 million in 10 years? Hmm. That's weird. When I use the tool that Rayban gave (the investment calculator I linked to at the bottom) I get a total of $27,623,462.18 after setting a start year of 2008 and an end year of 2033 and then setting the interest rate to 4.0% like you said. Did I miss something? Where did you get 45 million?
And I totally agree that you will see her on assisted income in 2 years if she doesn't get control of her finances. Maybe we can find her and skool her here?
Must typed it into the calculator wrong, as 45mil is the correct number.. Possibly you did not have inflation set to 0%? Default is 2%.
Remember the quick check is 'rule of 72' so 72/(interest rate) gives you the number of years till your investment doubles. so 72/4 tells us that at year 18 the investment is worth 34 million.
Well, actually, I did it manually with the calculator. I think maybe where it got messed up was the rate (or what is the right terminology for this? Frequency?) of compounding. Let me see if it shows that...weird. It doesn't mention whatsoever what the compound schedule is with that calculator (or I can't seem to find it). I know that if it's compounded weekly compared to monthly the difference at the end is huge. That's why it's beneficial to pay your mortgage bi-weekly instead of monthly if you can. That's also why credit cards are deadly, because I heard they compound DAILY!
That aside, I want to know why the numbers are different. You can follow exactly what I did in my original post. I simply took the initial investment, plugged it in for 1 year into the calculator, grabbed the resultant number and then replugged it in for another year. I did that 25 flippin' floopin' times so I want to make sure my labour at least teaches us something! Maybe we have to go back to THIS old link and do some manual work, because, it at least allows you to alter the compounding schedule.
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