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Investing In The Stock Market & Compounding Interest

Discussion in 'Making Money' started by Euphorix, Nov 28, 2015.

  1. Euphorix

    Euphorix Supreme Member

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    "Compound interest is the 8th wonder of the world" -Albert Einstein

    "My wealth has come from a combination of living in America, some lucky genes, and compound interest" -Warren Buffet

    "You don't earn your way to a fortune, you invest your way, you compound it" -Anthony Robbins

    Compound interest is interest being applied to the interest on your principle investment: Through it you can acquire MASS wealth.

    I know that sounds complicated but bare with me and I promise we'll make sense of it

    Imagine that we decide to play a game of golf. As we're on our way to the country club I tell you that I'm a terrible golfer and that I've only played a handful of times throughout my life. We pull up, park, get out of the car, and make our way to the greens.


    As we approach the first hole, I stop, turn to you and say "Want to bet a dime a hole?"


    "Yah know.. Just so there's something on the line"


    You smile and the thought that I'm some type of golf shark enters your mind, but still, you agree. I mean there are only 18 holes.. At a dime a piece you figure the most you're risking is a dollar and eighty cents


    I set myself up, raise my club, and am about to hit the first ball when suddenly I pull back.


    "Just to make it a little more interesting, why don't we double it each hole?"


    You cock your head to the side, think for a moment, and agree


    Hole 1: $0.10
    Hole 2: $0.20
    Hole 3: $0.40
    Hole 4: $0.80
    Hole 5: $1.60
    Hole 6: $3.20


    We're now a third of the way through our game of golf and we're only at three dollars and twenty cents. This is where things get interesting:


    Hole 7: $6.40
    Hole 8: $12.80
    Hole 9: $25.60
    Hole 10: $51.20
    Hole 11: $102.40
    Hole 12: $204.80


    From $6.40 to $204.80 in six holes? Wow.


    Here's where the three quotes at the beginning of this thread begin to make sense:


    Hole 13: $408.60
    Hole 14: $819.20
    Hole 15: $1,638.40
    Hole 16: $3,276.80
    Hole 17: $6,554.60
    Hole 18: $13,107.20


    From hole 1 to 6 we had an increase of three dollars and ten cents. From holes 13 to 18 we increased by twelve thousand six hundred and ninety eight dollars. THAT'S COMPOUNDING INTEREST


    You're thinking something like "awesome right.. but how does golf have anything to do with ME personally putting compounding interest to work for my life?" Here's how:


    Let's say that you invested 10k into the S&P 500 at a 7.5% compounding rate. You also added 1k to your investment pool each month


    After 60 years you would have 2,300,674.36


    You invested 82k so you turned a profit of $2,218674.36


    Not bad. Not bad at all


    Now let's say that you're a big earner and you take home 200k/month


    You start off with 100k and add 100k to your investment pool every month:


    After twenty seven years you'd have $1,051,844,140


    That's One Billion, Forty One Million, Eight Hundred Forty Thousand, One Hundred and Forty Dollars.


    Want to become a billionaire? Focus on creating a massive income. Invest that massive income into compounding interest

    That's my plan


     
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  2. HCMonstr

    HCMonstr Newbie

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    My math teacher told me about this when I was a kid. I ki d of which I jumped on it as soon as I could. Being 23 now I am currently doing this although because of my financial situation I can only afford to put in $500 a month. It will take a bit longer but ill be a millionaire one day.
     
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  3. Trending

    Trending BANNED BANNED

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    Definitely good info here :)
     
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  4. Euphorix

    Euphorix Supreme Member

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    Good for you. I'd consider investing that $500/month into building a massive income stream

    Then with THAT you can play in the stock arena at a much higher level
     
  5. 1morenoob

    1morenoob BANNED BANNED

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    theres no investment that has a guaranteed interest of 7.5%
     
  6. Euphorix

    Euphorix Supreme Member

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  7. Cnotey

    Cnotey Power Member

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    This is Economics 101. But the sheer awesomeness of compounding interest still surprises me sometimes.

    Has anyone heard the story of the peasant and the king? I'm sure there are many variations, but this is the most common.

    In ancient China, a peasant saved the life of the emperor's daughter. The emperor brought the man to his palace and told him he would grant him any wish to repay the favor.

    The peasant said: "Oh emperor, I am a simple peasant. I only wish for this. Give me one grain of rice for the first square of the chessboard, two grains for the next, four for the next and so on until all 64 squares are filled."

    The emperor laughed "Is that all? That's nothing, this proves the stupidity of peasants."

    In less than a month, the emperor was inspecting his rice stash, and saw that more than half of the entire country's rice was gone. He asked his treasurer what happened. The treasurer responded, we aren't even halfway through the chessboard yet!

    The peasant then became the richest man in the country.

    It's a story I've heard since I was a child proving the value of compounding interest.

    Do the math yourself, it's amazing.
     
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  8. 1morenoob

    1morenoob BANNED BANNED

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    That means nothing, history doesn't repeat itself. I could find a horse race where betting on number 7 every time for 100 years would of made you 300% mark up, doesn't mean it will happen again
     
  9. Cnotey

    Cnotey Power Member

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    Not true with the financial market. When you see an average of 7.38% over 10 years, you can bet people smarter than me and you, and everyone else on here combined are betting on exactly that.

    Again, Economics 101.
     
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    Last edited: Nov 28, 2015
  10. justaboy101

    justaboy101 Junior Member

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    Compounding interest is great, but most people don't realize that cost compounds as well. If you were able to double $1 every year for 20 years tax-free, you'd have $1,048,575. But what do you think is gonna have to that million when you pay a 30% tax every year? Some people will just assume that it'll be somewhere in the range of 700k. The actual answer is $40,641.31. So a 30% tax over 20 years will leave you with just 3.8% of what you would have made if you lived somewhere that didn't charge you taxes (or as much in taxes).

    Ever since I learned that, I have been applying it to all aspects of life, especially time spent working towards a goal.

    Mess around with the calculator if you'd like.
    http://www.csgnetwork.com/interestcomplexsavcalc.html
     
  11. dgusic

    dgusic Regular Member

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    Ohhh, this is interesting. Same as if you were to save $0.1 today, $0.2 tomorrow, $0.4 and so on... By the end of the month, you would be a millionaire.
     
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  12. HCMonstr

    HCMonstr Newbie

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    oh believe me, I have thought about trying to start something up to generate more income. Although to be honest I dont know where I would start, I have extremely little knowledge of SEO and even less about building a website (at the moment). I have been researching and trying to learn as much as I can, and although it dosen't see to be popular to most people I feel like ORM is something I could do. I feel like done right is can scale very well, as proven by the few success stories we have here. I am located within driving distance of 2 major cities, and my current job deals with sales anyway so I already have experience talking people into buying things.

    at the moment it's all just ideas but that is what i'm leaning towards the most. as I would like something long term that even if I have to put in hard work now could turn into a somewhat passive income stream down the road.
     
  13. The Curator

    The Curator Senior Member

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    The BEST FASTEST GROWING retirement vehicle is an indexed annuity. It will go up when the market goes up, and level if the market drops. You cannot lose principal due to the market. It is also the ONLY retirement vehicle that will GUARANTEE an income you cannot outlive FOR LIFE!
    If you are interested in dividends Dogs of the Day is a great website. The tops economics blog to read for macro analysis is Zerohedge. The best forum/site for investments has to be Seeking Alpha.
    chart1.png
    I think a combination of $MORL and $SLVO is the best for dividends. Respectively one is a REIT and the other is a precious metal ETN that uses a covered call strategy for $SLV or silver. $SLVO averages almost 1% a month, and $MORL was avg'ing 24% last year. They balance each other well. REITs go up in a good and sideways economy, and pm's do well in crap economies; so you have some diversification.


    Lastly, nothing beats real estate long term. Today you can get an FHA loan for a 4 unit Quad, and still pay residential taxes. You can find a place and have the 3 tenants pay for everything! Best way to acquire real estate, get an FHA loan every 5 years. Bigger Pockets is the best forum for real estate.

    Now for those that are savvy enough and hate paying taxes (especially on gains) you can get a permanent whole life insurance policy or an indexed universal life insurance policy, and earn 3-8% IRR on your policy's cash value, and take it out tax-free later on. MANY wealthy people use life insurance to supplement their income stream without paying taxes. In fact if you have investments, due to Sequence of Withdrawals, if you withdraw on a down market, your portfolio lasts a FRACTION, so smart investors will buy a whole life policy, have it build tax deferred for 5-10 years minimum, and if they need income, they take it out during a Bear Market, protecting their investments from devastating withdrawals during down years.
     
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    Last edited: Nov 29, 2015
  14. Euphorix

    Euphorix Supreme Member

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    Instagram and/or eBay are good starting points

    I also plan to heavily invest in real estate. That's where my moms money is

    What books are you reading?
     
  15. The Curator

    The Curator Senior Member

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    I like to stay current. Regarding real estate are you into landlording, flipping, or wholesaling?
     
  16. Euphorix

    Euphorix Supreme Member

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    Landlording residential properties. Eventually I also plan to own commercial buildings- Casino's etc

    Edit: How about yourself?
     
  17. snowberry

    snowberry Newbie

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    WTF lucky genes? So you need "good" genes to be rich? what do they consider 'good' and 'bad' genes anyway is this something all rich guys say to prevent everyone else from trying?
     
  18. Euphorix

    Euphorix Supreme Member

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    He's saying that he got good genes health-wise. He lived long enough for compounding interest to get to "the later holes" (referring back to the golf metaphor)
     
  19. The Curator

    The Curator Senior Member

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    Just sold my duplex last month, bought an engagement ring (ouch). I will be picking up a four-plex next year just renting and waiting for a good opportunity.
     
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  20. Euphorix

    Euphorix Supreme Member

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    Congratulations! Lucky lucky lady
     
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