Jul 18 2006
5% interest is *unbelievable*
After getting burned in tech stocks in 2000, I became an ultra-conservative investor. Gina and I have our savings in the very boring iShares Bond Index Fund, which plods along at a steady 5% return. 5% seemed really pathetic until I read this: if you invested a single penny at 5% back when Jesus was born, today you'd have a golden sphere a few hundred times the size of earth. Sounds like an exaggeration, right? So this morning I tried it on my calculator. I typed 0.01 * 1.05, and I hit the equals sign 100 times. And then another 100, and another 100... watch this: 1 penny invested at 5% per annum After 100 years..... $1.31 After 200 years..... $173 After 300 years..... $23,000 After 400 years..... $3 million After 500 years..... $390 million After 600 years..... $47 billion After 700 years..... $6.2 trillion After 800 years..... $811 trillion You get the idea. Every hundred years, we're adding roughly 2 zeros. So after 2000 years, your penny invested at 5% is worth around $100,000,000,000,000,000,000,000,000,000,000,000,000. What do I learn from this?- 5% is an unbelievable return.
- No family has ever had a reliable 5% return for any extended period of time
- The current economic system is unsustainable. They say the stock market always returns 10% over the long haul? Baloney.
