

Compound Interest Is A Lie - apsec112
http://rationalconspiracy.com/2012/08/21/compound-interest-is-a-lie/

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grandalf
Compound interest seems insignificant when framed as the author has framed it,
but consider all the people held hostage by the compounding interest on their
credit card debt.

For the normal working people the author describes, it's fairly unlikely that
they'll end up "rich" using such a risk-averse investment strategy. On the
other hand, it's also fairly unlikely they'll end up poor, which is the actual
motivation for most retirement saving.

Some people end up seeking more risk and in some cases it pays off. Others
happen to retire when the historical rate of return on their retirment
portfolio averaged 8-10% per year and feel rich because of that. Still others
die earlier than expected and will the money to their kids who now have a $1M
nest egg from an early age and stand a chance of turning it into real wealth.

It is interesting to think about the extremely high value of public sector
pensions, which are an under-the-radar transfer, extracted via the power of
public sector unions and kept strong thanks to state-enforced monopolies.

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apsec112
The reason people are held hostage to credit card debt is that a) they don't
declare bankruptcy, and b) frequent bankruptcy is priced in to the interest
rates, which are therefore crazy high. If the bank is owed $1 million, half of
that is never repaid due to bankruptcy, and the other half is repaid over
three years at 30% annual interest, the bank breaks even or makes a small
profit. But if you're in the half that repays at 30%, you're screwed pretty
hard.

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lutusp
Bad article title -- compound interest is a simple truth. Investment
counselors are the problem -- they try to claim they produce better results
than simple, buy & hold investments (and they don't).

<http://arachnoid.com/wrong/index.html#Investment>

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guan
“$1.3 million for 25 years equals $52,000 a year.”

But if you only spend $52,000 a year, the money that’s left earns interest.
With the 5% return assumption, you could spend a little over $92,000 a year
for 25 years.

Accordning to the simple calculator at www.brkdirect.com, if you pay Berkshire
Hathaway $1.3 million, they will guarantee a payment of $80,293 every year for
as long as you live, assuming you are male, currently 65 years old, and living
in Nebraska. If the annuity is bought with post-tax dollars, the after-tax
amount will be $73,918 a year for 20 years and then $48,176 a year. Annuities
are generally regarded as a bad deal for a variety of reasons, but this
doesn’t sound bad to me at all.

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bps4484
thought the same thing. In addition, once you're retired you have social
security and medicare to help out (let's assume for a moment that we'll
actually collect ss and medicare, I don't want to get into that debate). When
you throw those on top of 92k a year, and no longer have dependents at that
point (you're retired), that's not a bad retirement amount. The real question
is whether people can save 10k a year for their entire working life....

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Echo117
Sensational headline.

Sure, money managers have a significant interest in lying about their
likelihood of outperforming market averages (6.6% real return in the last 100
years, by the way, not 5%), but their fees don't mean that "compound interest
is a lie."

Compound interest isn't magic, it's just pretty simple math.

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kbob
The title is inflammatory and misleading. The thesis of the article is that
management fees hurt your investments' performance. (And a million dollars
ain't what it used to be, but that's hardly news.)

