Complaints about the value of Compound Interest

[Joel]

http://www.businessinsider.com/compound-interest-retirement-funds-2014-3

The graph shown in this article shows just how important investing early and frequently is, and shows the value of compound interest. Sure the numbers may be assuming too high or a return, and the return is the same for every year.

I'm just amazed at how ridiculous the users are who have commented on the article.

[arebelspy]

Obligatory xkcd: https://xkcd.com/947/

[arebelspy]

Oh god those comments.

Painful.

[jdoolin]

Oh god those comments.

Painful.

Yeah, I couldn't have said it better myself.  Very painful.

[Fireman]

I found the line about how $200k is 'astronomically larger' than the other two amounts to be a bit hyperbolic.  Especially when you consider that ARS wants to put $50k on red (or black)!

I'll echo how sad the comments are.  It's equally unfortunate that the few who try to chime in with decent advice get beaten down by the louder voice of ignorance.

[Mr Mark]

http://en.wikipedia.org/wiki/Stanford_marshmallow_experiment

ability as a child to delay fulfillment correlated highly with all manner of success measures later in life...

some people are just happier being wage slaves and spending now.

[warfreak2]

The problem with the Stanford marshmallow experiment is that it didn't control for kids who had learned not to believe promises made by an adult. It makes sense that kids raised by parents who often break promises would be, on average, less successful later in life. Those kids are going to take the marshmallow now, not necessarily because they don't have the self-discipline required to delay gratification, but because they simply don't believe that they will get two marshmallows if they wait.

I mean, their conclusion makes sense too, but the studies don't establish it, IMO.

[johnintaiwan]

I just can't imagine the majority of american's can't manage to save 5K a year. I wouldn't think it would be that hard for most. I guess if you work minimum wage and have to support a large family or something, but come on! Those comments are just so frustrating to read, I couldn't get through all of them. Do you think there is any evidence you could show these people to get them to change their ways?

[LowER]

Oh god those comments.

Painful.

Yeah, I couldn't have said it better myself.  Very painful.

I hope that those commenters are not a representative cross section of our otherwise pretty great country.....

[Ian]

I saw this and thought "Are the comments truly painful?"

Yes. They are.

Learn from my mistakes unless you have a masochistic streak.

[AlanStache]

I just can't imagine the majority of american's can't manage to save 5K a year. I wouldn't think it would be that hard for most. I guess if you work minimum wage and have to support a large family or something, but come on! Those comments are just so frustrating to read, I couldn't get through all of them. Do you think there is any evidence you could show these people to get them to change their ways?

-note just started reading article-

Even above minimum wage it can be hard.  Yes you can always cut spending, but are you going to live in the gheto so you can drop 5k into an ira?  I agree lots of people have horrible spending habits.  But I look at close family and see them losing there job every few years (no fault of there own) and being unemployed for 6 months - that will kill any savings plain.  18-24 months working median or lower income job followed by 6 months out of work.  This also makes it hard to live near work as work keeps moving.

median us house hold income was 51k in 2012 so half the homes made less than that, so plenty of families were in the 30k/year range.
15k/year general spending + 1000$/mon rent = 27k/year in total expenses.
poverty line is around 20k/year depending on the number of house members.  and plenty of people are below that.
15k/year is a VERY mmm spending rate and almost definitely low if you have* to drive to work.  Then put in some child care costs and finding 5k for an ira can get hard.  Yes very large percents of the population have little excuse for not fully funding an ira, but lets remember there are a good number of people at the bottom who simply dont have an extra 450$/month for long term savings.

have*:  yes-yes-yes.  but on a practical level driving is nearly a requirement for a great many people in large parts of the US.  There are many places you cant cross the street without a car.  yes-yes-yes-we all make choices about where we live.

[mrcheese]

I wanted to read those painful comments, but the link took me to the Australian version where there weren't any comments yet. It looks like my brain shall remain unmolested after all.

[arebelspy]

median us house hold income was 51k in 2012 so half the homes made less than that, so plenty of families were in the 30k/year range.

Median married income though was 62k.  The singles were in the 25-30k range, bringing it down to the household number you quoted.

When you're single, your expenses are a lot lower (and you may be okay living in a worse area) and though you're making less, you should be able to stick some away.

When you're married, likely your income is higher (causation != correlation and all that, but by that time typically you're a bit older, have an extra person working, etc.)  Either situation seems like, if you tried, you could save some.

[Amanda]

The problem with the Stanford marshmallow experiment is that it didn't control for kids who had learned not to believe promises made by an adult. It makes sense that kids raised by parents who often break promises would be, on average, less successful later in life. Those kids are going to take the marshmallow now, not necessarily because they don't have the self-discipline required to delay gratification, but because they simply don't believe that they will get two marshmallows if they wait.

I mean, their conclusion makes sense too, but the studies don't establish it, IMO.

They just recently did a follow-up to control for that exact thing and found that the ability to trust adults exactly correlated to the necessary self-discipline necessary to wait for the second marshmallow. Link: http://www.slate.com/blogs/xx_factor/2012/10/16/the_marshmallow_study_revisited_kids_will_delay_gratifcation_if_they_trust.html

[tomsang]

When I read these type of comments it gives me great confidence that the stock market will continue to provide great returns in the future. All of these people that are railing against the evil banks are willing to become a slave to the corporation by blowing all of their money and refusing to invest. Which allows our companies to extract great profits from the ignorant.

Sometimes I have trouble when I see the 1%ers putting down the rest of society. When I read these types of comments, it is hard not to feel like the financially illiterate are creating their own nightmare.

If people would spend as much mental energy on their future and investments as they do on their bracket, they would be in a far better place. Again in comes back to the Matrix analogy, where a few will seek out the truth from reading those comments. Most will remain slaves to their ignorance.

[Samsam]

Obligatory xkcd: https://xkcd.com/947/

Freakin' A! I've been sitting here trying to get the tooltip to pop up for like 5 min now....Going to go get more coffee...it's going to be a long day. 

[warfreak2]

They just recently did a follow-up to control for that exact thing and found that the ability to trust adults exactly correlated to the necessary self-discipline necessary to wait for the second marshmallow. Link: http://www.slate.com/blogs/xx_factor/2012/10/16/the_marshmallow_study_revisited_kids_will_delay_gratifcation_if_they_trust.html

That's actually exactly what I was talking about. There's definitely no "exact" correlation between trust and self-discipline - some kids do trust a second marshmallow is coming, but can't bring themselves to wait - and the kids who don't trust that a second marshmallow is coming, we have no way of knowing if they'd be self-disciplined enough to wait. I.e. you can't label the kids who don't wait as "not self-disciplined", and that's the whole point of doing the follow-up.

It also didn't look at their results later in life; it therefore didn't compare how much success in later life is explained by self-discipline, vs. how much is explained by trust.

[arebelspy]

Freakin' A! I've been sitting here trying to get the tooltip to pop up for like 5 min now....Going to go get more coffee...it's going to be a long day.

lol!  I've been there.  :)

[AlanStache]

... tooltip to pop up for like 5 min now

Just hope your are also not on an ipad.

[dragoncar]

Freakin' A! I've been sitting here trying to get the tooltip to pop up for like 5 min now....Going to go get more coffee...it's going to be a long day.

lol!  I've been there.  :)

You did it!!  Now make it go away.

[Samsam]

... tooltip to pop up for like 5 min now

Just hope your are also not on an ipad.

Haha nope, just thought I was on the xkcd page viewing it.

[horsepoor]

It's fascinating how they all focus on the market downturns, and ignore things like the crazy rally over the last year.  Perhaps some "buy high, sell low" investors who got nervous and lost their shorts, now bitterly trolling financial articles.

And I love the "No body has any money!!1!" complaint, when, wherever you go, people are out spending at the mall, restaurants, driving brand new trucks and wearing the latest clothes whilst sipping Starbuck's and talking on their iPhone 5s. 

[Daniel]

And I love the "No body has any money!!1!" complaint, when, wherever you go, people are out spending at the mall, restaurants, driving brand new trucks and wearing the latest clothes whilst sipping Starbuck's and talking on their iPhone 5s.

Doesn't that make the complaint true though? :-P

[kkbmustang]

OMG. The incorrect use of "your" and "you're" in the comments is MAKING MY EYES BLEED.

[Fireman]

OMG. The incorrect use of "your" and "you're" in the comments is MAKING MY EYES BLEED.

Their their, your going to be allright.

[kkbmustang]

OMG. The incorrect use of "your" and "you're" in the comments is MAKING MY EYES BLEED.

Their their, your going to be allright.

That was good.

[horsepoor]

And I love the "No body has any money!!1!" complaint, when, wherever you go, people are out spending at the mall, restaurants, driving brand new trucks and wearing the latest clothes whilst sipping Starbuck's and talking on their iPhone 5s.

Doesn't that make the complaint true though? :-P

It is a self-fulfilling prophecy in that sense.

But DH and I like to observe how awful the economy must be after all when we pull into the Best Buy parking lot and kind find a spot to park, or see all the people out eating lunch at Cheesecake Factory on a Tuesday afternoon.  If you bitch about it enough, that makes it true, and not your fault.

[hybrid]

OMG. The incorrect use of "your" and "you're" in the comments is MAKING MY EYES BLEED.

Their their, your going to be allright.

That was good.

Plus won.

[GoldenStache]

@ Joel

Thanks for the post. 

I was truely amazed by the ignorance of the comments.  Not that there are people that have those ideas, but the fact that people would go to business insider (not my usual cup of info but not the worst) and complain about the banks, wallstreet and investing in general. 

People are mad that their bank accounts are only getting .08% and that it is not possible to get 5%-7% when the S&P was up 29.6% in 2013.  The comments about how inflation is going to take over the world so it is better to spend everything you have now and some (yes they are saying to go into debt) to purchase discretionary items (boats and RVs) to make your life better for the short term.

I just have to figure out how to make money off of all of these idiots. 
       

[arebelspy]

I just have to figure out how to make money off of all of these idiots.       

It's pretty easy, but unethical.  Sell them things like Whole Life Insurance and Annuities.

See: Companies like Everest Wealth Management

[odput]

I just have to figure out how to make money off of all of these idiots.     

Buy Apple stock (or GM, Ford, Winnebago, etc.)

edit: +1 arebelspy for the EWM comment

[AlanStache]

Buy Apple stock (or GM, Ford, Winnebago, etc.)

Thought we did index funds here? 

try http://finance.yahoo.com/echarts?s=PEJ+Interactive#symbol=PEJ;range=my

[odput]

We do, but I was picking on stocks that appeal directly to consumer sukkas!

[tomsang]

I just have to figure out how to make money off of all of these idiots.       

It's pretty easy, but unethical.  Sell them things like Whole Life Insurance and Annuities.

See: Companies like Everest Wealth Management

I disagree. The people are so scared of investing, government, and the future that they would not buy these products.  They would actually be better off buying these products vs. the investment strategies that they are doing or not doing.  I think we saw how to make money off of them.  Guns, Ammo, Gold, and Toys.  With Gold being the closest thing to an investment.

[arebelspy]

I just have to figure out how to make money off of all of these idiots.       

It's pretty easy, but unethical.  Sell them things like Whole Life Insurance and Annuities.

See: Companies like Everest Wealth Management

I disagree. The people are so scared of investing, government, and the future that they would not buy these products.  They would actually be better off buying these products vs. the investment strategies that they are doing or not doing.  I think we saw how to make money off of them.  Guns, Ammo, Gold, and Toys.  With Gold being the closest thing to an investment.

He asked how to make money off them.  Preying on their fear and selling them inferior investment products is an easy way to do that.

Many more people buy whole life insurance and annuity "investment" products than they do apocalypse scenario investments.

[MissPeach]

I just have to figure out how to make money off of all of these idiots.       

It's pretty easy, but unethical.  Sell them things like Whole Life Insurance and Annuities.

See: Companies like Everest Wealth Management

I disagree. The people are so scared of investing, government, and the future that they would not buy these products.  They would actually be better off buying these products vs. the investment strategies that they are doing or not doing.  I think we saw how to make money off of them.  Guns, Ammo, Gold, and Toys.  With Gold being the closest thing to an investment.

He asked how to make money off them.  Preying on their fear and selling them inferior investment products is an easy way to do that.

Many more people buy whole life insurance and annuity "investment" products than they do apocalypse scenario investments.

This reminded me of a TV series my bf showed me. It was of people spending tons of money on doomsday shelters.

I hate to say this, but most people I know personally are poor with no money due to ignorance. For example I have seen people quit entry level jobs because they don't like their boss and then have trouble getting anyone else to let them in the door without any experience. People who refuse to take a job paying $15/hour because they are worth $18/hour so they go unemployed for years. People who don't educate themselves to take advantage of programs for them such as EIC on their taxes. At the same time they complain things are tough and are buying toys like like crazy on credit.

[MrsPete]

Oh god those comments.

Painful.

Let's see . . .

Cars don't last ten years (What IS that thing my daughters are sharing?  It sure looks like my old car.)
A college degree can become obsolete within three years.
You get a higher standard of living by being in debt. 
Investing is stupid.
The retirees with no money are going to form a voting block and force change in the government (Led by whom?  The idiots who didn't save?)
You have 40 years 'til retirement.  Why do you care what your stocks are worth today?
Anyone with debt should not be investing.
Money put into a 401K is just lost.  It's going to the rich, and you'll never get it back.

I can't read any more.

OMG. The incorrect use of "your" and "you're" in the comments is MAKING MY EYES BLEED.

Yeah, I have to admit it:  When someone uses basic, elementary school words incorrectly, I assume that person is stupid.  It's not a typo when it's repeated over and over.

I hate to say this, but most people I know personally are poor with no money due to ignorance. For example I have seen people quit entry level jobs because they don't like their boss and then have trouble getting anyone else to let them in the door without any experience. People who refuse to take a job paying $15/hour because they are worth $18/hour so they go unemployed for years. People who don't educate themselves to take advantage of programs for them such as EIC on their taxes. At the same time they complain things are tough and are buying toys like like crazy on credit.

Yeah, most of the people I know in real life who are in trouble financially have brought it upon themselves.  I know some who've genuinely had bad luck, but they're the minority.

[rocksinmyhead]

Oh god those comments.

Painful.

Yeah, I couldn't have said it better myself.  Very painful.

I hope that those commenters are not a representative cross section of our otherwise pretty great country.....

yeah, I feel really depressed and disturbed now.

The retirees with no money are going to form a voting block and force change in the government (Led by whom?  The idiots who didn't save?)

actually, this was the one that legitimately worried me. what if?!?

[Eric]

You have 40 years 'til retirement.  Why do you care what your stocks are worth today?

I thought this was good advice, in the vein of "don't worry about your balances, just keep shoveling money at your investments"

OMG. The incorrect use of "your" and "you're" in the comments is MAKING MY EYES BLEED.

Yeah, I have to admit it:  When someone uses basic, elementary school words incorrectly, I assume that person is stupid.  It's not a typo when it's repeated over and over.

Including some otherwise seemingly intelligent posters on this very forum!  It's really hard to read "If your investing in..." followed by a brilliantly thought out and well reasoned post.  In fact, it kind of boggles my mind.

[warfreak2]

In fact, it kind of boggles my mind.

*Bogles

[Eric]

In fact, it kind of boggles my mind.

*Bogles

HA!

[Shor]

In fact, it kind of boggles my mind.

*Bogles

HA!

Surely, he meant Boggle!

[skyrefuge]

In fact, it kind of boggles my mind.

*Bogles

LOL. Nth-level humor. "It's funny 'cause it's true": https://forum.mrmoneymustache.com/search2?search=bogglehead

(it's too frequent for them to all by typos, so I wonder if it's because they have no idea where the term Bogleheads comes from, or if they just internally pronounce John Bogle's name as "Boggle" and thus it rolls out that way...either way, it keeps me from reading any further!)

[rocksinmyhead]

In fact, it kind of boggles my mind.

*Bogles

HA!

Surely, he meant Boggle!

this game is my secret power. my mom always kicks my ass at Scrabble, but I can destroy pretty much anyone in my family at Boggle. not sure why.

[Thegoblinchief]

I was going to read the comments but I realized I was about to read the comments on the internet.

[Gerard]

The retirees with no money are going to form a voting block and force change in the government (Led by whom?  The idiots who didn't save?)

actually, this was the one that legitimately worried me. what if?!?

This has basically already happened in Canada. Non-saving old people vote, even if they don't form an organized voting block, so they've already managed to achieve:
1. The Old Age Supplement, which basically doubles people's Canada Pension Plan earnings, but it's paid for out of today's tax revenues, rather than from what people contributed to it.
2. The Guaranteed Income Supplement, which makes sure that people over 65 make at least $16K a year, even if they never contributed to the pension plan or saved anything.
3. Lower taxes for pension income.
4. A extra $4K of untaxed earnings for people over 65.

The result? The elderly are now the demographic least likely to live in poverty. Hurray, I guess, but it would be nice to take care of children and younger adults as well.

(I realize this comment doesn't contribute anything to helping readers optimize their lives, but at least it's something Canadian readers can drag out the next time old people start whining at them.

[Mr Mark]

Isnt that fair return for the higher taxes and lower opportunities for low fee investment opportunities? ?