I think reading so much Buffett lately is having an effect on me. Something that is classical Buffett must be his reverence of the power of compounding. For those of you who have yet to take a peek into compounding, here's a taste.
$1 compounded at 5% a year for 10 years = $1.63
$1 compounded at 5% a year for 20 years = $2.65
$1 compounded at 5% a year for 30 years = $4.32
$1 compounded at 10% a year for 10 years = $2.59
$1 compounded at 10% a year for 20 years = $6.72
$1 compounded at 10% a year for 30 years = $17.44
$1 compounded at 15% a year for 10 years = $4.05
$1 compounded at 15% a year for 10 years = $16.37
$1 compounded at 15% a year for 10 years = $66.21
$1 compounded at 20% a year for 10 years = $6.19
$1 compounded at 20% a year for 20 years = $38.33
$1 compounded at 20% a year for 30 years = $237.37
*The figures do not take inflation into consideration
Imagine that. Imagine if you can get return from your investments at 20% a year which some fund managers have managed quite consistently. You would have 237 times your initial investment by the time you retire. Techinically speaking, for every MacDonalds extra value meal you buy at an average price of $6, you would effectively be throwing away $1424.22 in future dollars. So well maybe we should think doubly hard before we buy something that we might not need...anyway this is just a cool way to show how compounding exponentially increases your intial capital. If I had bought myself a PSP at $400 as well as an iPod at $300, that would cost $700 in current capital but $166,159 in 30 year dollars! *gasps!* cool eh? haha no I have nothing against buying things now but I just thought it'd help illustrate what I'm trying to get across.
$1 compounded at 5% a year for 10 years = $1.63
$1 compounded at 5% a year for 20 years = $2.65
$1 compounded at 5% a year for 30 years = $4.32
$1 compounded at 10% a year for 10 years = $2.59
$1 compounded at 10% a year for 20 years = $6.72
$1 compounded at 10% a year for 30 years = $17.44
$1 compounded at 15% a year for 10 years = $4.05
$1 compounded at 15% a year for 10 years = $16.37
$1 compounded at 15% a year for 10 years = $66.21
$1 compounded at 20% a year for 10 years = $6.19
$1 compounded at 20% a year for 20 years = $38.33
$1 compounded at 20% a year for 30 years = $237.37
*The figures do not take inflation into consideration
Imagine that. Imagine if you can get return from your investments at 20% a year which some fund managers have managed quite consistently. You would have 237 times your initial investment by the time you retire. Techinically speaking, for every MacDonalds extra value meal you buy at an average price of $6, you would effectively be throwing away $1424.22 in future dollars. So well maybe we should think doubly hard before we buy something that we might not need...anyway this is just a cool way to show how compounding exponentially increases your intial capital. If I had bought myself a PSP at $400 as well as an iPod at $300, that would cost $700 in current capital but $166,159 in 30 year dollars! *gasps!* cool eh? haha no I have nothing against buying things now but I just thought it'd help illustrate what I'm trying to get across.