Astounding sounding compounding

When I was a kid, the general advice was to save 10% of whatever income earned - diligently. I wonder how many others have heard this advice yet like me, didn't do it. I have been working for 25 years now and while I don't have any accurate numbers, factoring in the different jobs through school, university and as a graduate, let's say that I would have been able to put aside 3000 a year or, 75,000 all up.

If I had invested that and given it a conservative 5% annual growth, compound interest would get to work:

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

and I would have around 160,000 dollars in the bank. Factoring in the rate of inflation means that the savings have about the same buying power as they would have had if I had spent them as I got it.

But, 5% is conservative with most investments looking to be able to increase at around about 10% per annum. What's would I have now?

357,000.

That would be quite an impressive bank roll for most people I would say. But if we expanded it out for just another 15 years, we would get this where we continued to put the 3000 dollars a year away, we would get this.

1,600,000.

Compound interest is an amazing little scam, but it does work in our favour - however we can't do it in our head, we just aren't built to work out these kinds of numbers which makes our intuition very poor when it comes to how much impact it will actually have.

For example, if instead of the 3000 a year of 10% of our earnings, we moved it down to 3% of our earnings and 1000 a year - what would the 40 year yield be?

Not bad, but I don't have 40 years left til I am likely to retire, I have 25.

@1000 dollars a year

@3000 dollars a year

so, if in the next 25 years I was able to put 3000 away each year and attract 10% interest reinvested into it, I would have put 75,000 in and get about 360,000 out for my retirement. With 2% inflation (this is likely to increase), I am still well above the inflation rate.

Now, compound interest works wherever you happen to live with whatever you happen to earn.

On Steem, I can get about a 20% return on my STEEM per year at the current inflation rate of the pool. That means that with 1000 Steem, I could have 200 more per year and in five years it would compound into

What is the future value of this STEEM? It is an unknown.

While some people might think that there is no value in Steem at all, others are taking the risk that there will be value on the held Steem in the future. Those that have their Steem on an exchange, cannot grow their Steem in this manner at all - they have to trade and as a result, face other kinds of risks.

1000 Steem today is 200 dollars and even if the price stays static for the next 5 years at 0.20, the value of the Steem that has compounded on top would be 840 dollars - that is 450% in 5 years. Of course, it could all crash to nothing - but, it could also go to a dollar. That makes the 200 dollar investment worth 4274 dollars - a 2000% increase. This is speculation.

All investing is speculation of course as it is a prediction of future price. Currently, there is very little actual indicators of price discovery in crypto other than speculators pumping or dumping as there is very little utility in any of the projects. Those who are looking at only the rankings and price are not doing themselves a service as most of the projects have nothing backing them other than a token and an idea.

What I do know is that in investing, without risk the safe options are going to be in traditional vehicles and therefore at the whims and mercies of a very whimsical and merciless minority, with even the fees on managing a fund that they manipulate being outrageous. Most don't recognize this though as they take small amounts of the earnings over time -compounded. You invest where they tell you to invest yet magically, they make a higher percentage return on their investments than you do.

I don't mind the risk of Steem because even though I have likely bought in more than 99% of the active users here, I have worked to be able to cost average my investment by interacting and creating what I want to create. If it all goes to zero, so be it - but I don't believe it will.

If I did believe it will go to zero - why am I here?

How I see it is that there are all kinds of good advice that I never listened to throughout my life, but if I had, I likely wouldn't have found Steem either. The ceiling on Steem is an unknown whereas for traditional investments, it is always going to depend on the institutions that own them. Why I like Steem is that it is about ownership of something that I have control over and I do not plan on selling out of it while there is still so much upside potential.

I watched Steem go from 6 cents to $8.30 in less than a year yet, people don't think it is possible to do it again. That is fine - I don't mind taking the risk and since this is an opt-in as well as an opt-out platform, no one is forced to be here, no one is forced to hold, no one is forced to post, vote, support or complain - everyone makes their own experience on Steem.

Don't invest with what you can't afford to lose completely and I am okay with losing what I have put in considering the upside potential. One day I might be holding a bag of worthless Steem or I will have ...

it is still unknown.

Just think, if everyone had listened to the advice to put 10% of their earnings away, buying Steem with a tiny fraction of it would be an absolute no brainer - the problem is - listening isn't doing so most people on earth have to think really hard about where they put their value which means - they can't take risks.

But of course - we all like to blame others for our position in life.

Taraz
[ a Steem original ]