Trying to improve investment literacy 550 words at a time.
Millennials, time in the market more important than timing the market (Indianapolis Business Journal/January 28, 2017)
Greetings Investing Fans,
This week’s column deals with an “Investments 101” concept—Compound Interest/the “Rule of 72.” Each summer I give an investments/personal finance talk to a group of interns. I offer them a proposition: “Would you rather have $100,000 or a Penny doubled every day for a month?” This is a group of bright students, so they know it’s a trick question. I’ve broken the fictional month into 3 sections (see attachments); Days 1-15, Days 16-20 and Days 21-30. As you can see, if you took the “Penny doubled” option, you probably felt pretty silly after Day 15. You didn’t feel any better after Day 20. You didn’t surpass the $100,000 hurdle until Day 25, but those last 6 Days got VERY interesting. Yes, it’s absurd to think about an investment doubling every day. Everybody wants to go straight to Day 25 and ride the exciting, steep part of the curve. However, that’s not how you grow wealth. In order to get to the exciting, steep part, you first have to endure the long, boring flat part. Unfortunately, trying to skip that part can prevent you from reaching the good part.
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