Editing 947: Investing

{{w|Compound interest}} is a type of {{w|interest}} in which the interest earned is added to the total amount, so that the interest itself then begins to gain interest in an exponential fashion. This contrasts to {{w|simple interest}}, where the amount used to calculate the interest will always stay at a fixed value. In economics classes, many teachers like to demonstrate extreme examples of compound interest, typically turning a thousand dollars into tens of thousands thanks to unrealistically high interest rates over several decades. But here, Ponytail discovers that a more realistic example is less than overwhelming. Instead of simple interest of 2% earning $200 in ten years, with compounding $219 is produced, hardly any better on a $1000 investment.

There is an urban legend that Einstein said that compounding interest is the most powerful force. {{w|Snopes}} has its [http://www.snopes.com/quotes/einstein/interest.asp doubts about it].

 

The idea in the title text that people take advice from physicists making small talk is also referenced in [[799: Stephen Hawking]] and [[1206: Einstein]].

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

:[Ponytail turns around and opens a computer on a previously unseen desk and begins calculating.]

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

:Ponytail: ...let's see...

:Ponytail: ...$1,219.