Mickey Kim, CFA's Indianapolis Business Journal Investing Columns
January 30, 2017
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.

   

 

years
(
you can ask
Mary and Larry
!
)
. Whatever your return assumption, it’s better to start sooner rather
than later
.
You want
to let compounding work as long as possible
for you
.
The
corollary is credit card companies love the Rule of 72 even more than investors
because
t
he
interest rate
they
charge dwarfs the returns investors can earn.
A
t 18%
interest,
your credit card debt
will
double
every four years
(72
divided by
18).
You can
see
how
credit card debt can get out of control
in a hurry.
Compound interest and the Rule of 72 can be tremendous financial levers to help you
accumulate assets. Unfortunately, they can also crush you.
Invest more and sooner
and avoid credit
card debt
like the plague.
The opinions expressed in these articles are those of the author as of the date the article was published. These opinions hav
e
not been updated or supplemented and may not reflect the author’s views today. The information provided in th
ese articles
does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a
recommendation to purchase or sell any particular stock or other investment.
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