The Magic of Compound Interest My Ass

Posted At : July 1, 2008 3:06 PM | Posted By : Admin
Related Categories: Complaint

They lied to us, and they still are.

Search Google for "magic of compound interest" and look at all those wonderful web sites expounding the wonders of compound interest. Invest only $100 and month and after 30 years you will have $150,129.52! Really? Sign me up!

Well I did sign up. 20 years ago. I've been investing about $300 a month for 20 years in my Magic of Compound Interest account. According to this calulator I should have $179,320.80 in my account. In reality, I have half of that amount. And for your information, $300 * 240 months = $72,000. Where the freak is the magic?

The moral of the story is that reality sucks and people are overly optimistic about expected returns. Everyone says, "But it will be okay if you invest for the Long Term." Excuse me, but with a life expectancy of 80 years, I'd say 20 years so far is pretty freakin' long term. Obviously the Magic of Compound Interest will not make us all millionaires as we were (and still are) promised. I've only got another 25 years or so until I really need this money.

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Compound interest is good. But that isn't the problem. It's the rate that determines whether you have 80K or 280K? Rates suck these days, so obviously your rate of return is going to be lower.

# Posted By MJR | 7/1/08 5:02 PM

Compound interest is good. But that isn't the problem. It's the rate that determines whether you have 80K or 280K? Rates suck these days, so obviously your rate of return is going to be lower.

# Posted By MJR | 7/1/08 5:04 PM

Compound interest is good. But that isn't the problem. It's the rate that determines whether you have 80K or 280K? Rates suck these days, so obviously your rate of return is going to be lower.

# Posted By MJR | 7/1/08 5:04 PM

Compound interest is good. But that isn't the problem. It's the rate that determines whether you have 80K or 280K? Rates suck these days, so obviously your rate of return is going to be lower.

# Posted By MJR | 7/1/08 5:04 PM

Don't most of those calculators assume a constant interest rate? The one you link to appears to. In reality, as MJR says, that this is not constant at all.

Many people who "promise" the high rate of returns, also assume a growth of 10%. Theoretically it is possible in the stock market, but unlikely in savings accounts / CDs.

# Posted By Jeffry Houser | 7/4/08 3:07 PM

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