The Money Mustache Community

Learning, Sharing, and Teaching => Investor Alley => Topic started by: heybro on April 27, 2018, 02:39:28 AM

Title: Compound Interest
Post by: heybro on April 27, 2018, 02:39:28 AM

Ever play around with the compound interest calculators?

If you put $100,000 in the stock market TODAY and let it sit for 30 years, at 8 percent, it will be a million dollars!

What little amount can do so much!

It seems you are either asset building and letting interest work for you -or- you are going in to debt and letting interest bury you.

I get so surprised by these interest calculators every time!  haha.

Title: Re: Compound Interest
Post by: MidwestnRich on April 27, 2018, 10:51:50 AM

Yes. Interestingly, for ER people, you don't have it compounding as long. But that's what blows my mind. How anyone working for 30+ years isn't worth ~$1M. It only takes like $10k/yr!!!

Also, I'd recommend getting familiar with Excel or Google Sheets for compound interest calculations. Read about the PV, FV, and PMT functions. I keep a random excel document open most of the time for handy back-of-the-envelope thinking type problems. Loads of fun!

Title: Re: Compound Interest
Post by: heybro on April 28, 2018, 02:15:16 AM

Quote from: marktbaldridge on April 27, 2018, 10:51:50 AM

But that's what blows my mind. How anyone working for 30+ years isn't worth ~$1M. It only takes like $10k/yr!!!

EXACTLY!  wow!  yes! 

Title: Re: Compound Interest
Post by: Fields of Gold on April 30, 2018, 08:06:04 AM

Quote

How anyone working for 30+ years isn't worth ~$1M. It only takes like $10k/yr!!!

The opening post implies $100K is invested from Day One of the 30 year period.  $10K invested per year, starting from $0, probably will take more time to reach $1M. 

Title: Re: Compound Interest
Post by: kingxiaodi on April 30, 2018, 08:56:10 AM

Quote from: Fields of Gold on April 30, 2018, 08:06:04 AM

Quote

How anyone working for 30+ years isn't worth ~$1M. It only takes like $10k/yr!!!

The opening post implies $100K is invested from Day One of the 30 year period.  $10K invested per year, starting from $0, probably will take more time to reach $1M.

Assuming one starts with $0, invests $10k at the end of each year, and gets a return of 7%, I calculate that one would have ~$945k at the end of year 30, and $1.021M at the end of year 31 (and since you didn't invest until the end of year 1, that's $1+M from investing $10k/year for 30 years).

Title: Re: Compound Interest
Post by: MidwestnRich on April 30, 2018, 12:42:09 PM

Quote from: Fields of Gold on April 30, 2018, 08:06:04 AM

Quote

How anyone working for 30+ years isn't worth ~$1M. It only takes like $10k/yr!!!

The opening post implies $100K is invested from Day One of the 30 year period.  $10K invested per year, starting from $0, probably will take more time to reach $1M.

Open Excel

A1 =-FV(0.07,30,0,100000)
A2 =-FV(0.08,30,0,100000)
A3 =-PMT(0.07,30,0,1000000)

A1 is $100k at 7% for 30 years.
A2 is $100k at 8% for 30 years.
A3 is how much per year to get $1M at 7% after 30 years.