947: Investing

< Prev Comic #947 (September 5, 2011) Next >

Investing

Title text: But Einstein said it was the most powerful force in the universe, and I take all my investment advice from flippant remarks by theoretical physicists making small talk at parties.

Explanation

Compound interest is a type of interest in which the interest earned is added to the total amount, so that the interest itself then begins to gain interest. This contrasts to simple interest, where the amount used to calculate the interest will always stay at a fixed value.

There is an urban legend that Einstein said that compounding interest is the most powerful force. Snopes has its doubts about it.

Transcript

Ponytail: Sure, 2% interest may not *seem* like a lot. But it's *compound*!

[Ponytail opens a computer and begins calculating]

Ponytail: If you invest $1,000 now, in just ten short years you'll have.. ..let's see..

Ponytail: ..$1,219.

Ponytail: Ok, so compound interest isn't some magical force.

Megan: Yeah, I'm just gonna try to make more money.

 add a comment!

Discussion

Accounting for inflation, you'll probably end up losing money if you're just relying on bank interest for income. Davidy22 (talk) 10:04, 9 October 2012 (UTC)

Losing money compared to what? Even if inflation is 3%, getting 2% interest in a bank is better than getting 0% interest under your mattress... 72.169.224.98 14:09, 6 December 2012 (UTC)

Losing money compared to $1 spending power from the start date to $1 spending power at the end date, regardless of how much interest is earned, you still can't buy the same amount of stuff. lcarsos_a (talk) 16:00, 6 December 2012 (UTC)

An alternative to investing in a bank account is to do with your money what the bank intends to do with your money, which is to loan it to other people at a higher interest rate, higher than the rate of inflation. Of course, some fraction of these loans will never be repaid, and you can't simply withdraw your money whenever you feel like it, so this type of scheme works better if you have tons of money to begin with-- more than just a thousand dollars seed money.63.155.139.54 14:39, 26 April 2013 (UTC)

I see! So in order to avoid having to use a bank, you should... become a bank! ...oh.--199.244.214.110 20:42, 2 May 2013 (UTC)

Banks don't have the luxury of being able to put all their money in insured term deposits. Promethean (talk) 03:08, 3 May 2013 (UTC)