Home
In this issue

Jonathan Tobin: Defending the Right to a Jewish State

Heather Hale: Compliment your kids without giving them big heads

Megan Shauri: 10 ways you are ruining your own happiness

Carolyn Bigda: 8 Best Dividend Stocks for 2015

Kiplinger's Personal Finance editors: 7 Things You Didn't Know About Paying Off Student Loans

Samantha Olson: The Crucial Mistake 55% Of Parents Are Making At Their Baby's Bedtime

Densie Well, Ph.D., R.D. Open your eyes to yellow vegetables

The Kosher Gourmet by Megan Gordon With its colorful cache of purples and oranges and reds, COLLARD GREEN SLAW is a marvelous mood booster --- not to mention just downright delish
April 18, 2014

Rabbi Yonason Goldson: Clarifying one of the greatest philosophical conundrums in theology

Caroline B. Glick: The disappearance of US will

Megan Wallgren: 10 things I've learned from my teenagers

Lizette Borreli: Green Tea Boosts Brain Power, May Help Treat Dementia

John Ericson: Trying hard to be 'positive' but never succeeding? Blame Your Brain

The Kosher Gourmet by Julie Rothman Almondy, flourless torta del re (Italian king's cake), has royal roots, is simple to make, . . . but devour it because it's simply delicious

April 14, 2014

Rabbi Dr Naftali Brawer: Passover frees us from the tyranny of time

Greg Crosby: Passing Over Religion

Eric Schulzke: First degree: How America really recovered from a murder epidemic

Georgia Lee: When love is not enough: Teaching your kids about the realities of adult relationships

Cameron Huddleston: Freebies for Your Lawn and Garden

Gordon Pape: How you can tell if your financial adviser is setting you up for potential ruin

Dana Dovey: Up to 500,000 people die each year from hepatitis C-related liver disease. New Treatment Has Over 90% Success Rate

Justin Caba: Eating Watermelon Can Help Control High Blood Pressure

The Kosher Gourmet by Joshua E. London and Lou Marmon Don't dare pass over these Pesach picks for Manischewitz!

April 11, 2014

Rabbi Hillel Goldberg: Silence is much more than golden

Caroline B. Glick: Forgetting freedom at Passover

Susan Swann: How to value a child for who he is, not just what he does

Cameron Huddleston: 7 Financial Tasks You Should Tackle Right Now

Sandra Block and Lisa Gerstner: How to Profit From Your Passion

Susan Scutti: A Simple Blood Test Might Soon Diagnose Cancer

Chris Weller: Have A Slow Metabolism? Let Science Speed It Up For You

The Kosher Gourmet by Diane Rossen Worthington Whitefish Terrine: A French take on gefilte fish

April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review Nov. 26, 2007 / 16 Kislev 5768

The miracle of compounding interest

By Mary Hunt


Printer Friendly Version
Email this article

http://www.JewishWorldReview.com | Recently I heard from Mimi K. in Mississippi who wanted to know of a way to teach her children about the principle of compounding interest. Her question reminded me of a story I learned from a colleague, Alvin Danenberg, that takes a nebulous financial theory and turns it into an easily understood principle:


In 1492, Christopher Columbus decided he was going to save for retirement. He had one penny, and he knew he could earn 6 percent every year on his money. He put the penny in his left pocket and placed the interest ($0.01 x 6 percent is $0.0006) into his right pocket for safekeeping. He never added anything to his original penny in his left pocket. Yet the interest accumulated year after year in his right pocket.


Chris is a very healthy guy: He has lived until 2007 (515 years later), and he has decided to retire. He takes his penny from his left pocket and adds it to the simple interest in his right pocket.


Do you know how much Mr. Columbus has? Well, the interest in his right pocket added up to only 31 cents (515 years x $0.0006 is $0.309). Along with his original penny from his left pocket, he has about 32 cents on which to retire. Not very good planning.


What could Chris have done differently? Let's assume Chris was much more astute about investing because he knew about compounding interest. Instead of putting the interest in his right pocket, he put it into his left pocket with the original penny (the principal). Over the years, he would earn the same 6 percent interest on the original penny and the accumulated interest in his left pocket.


As the story goes, at the end of year one, he had $0.0106 in his left pocket (the original penny plus the 6 percent interest). At the end of year two, he had $0.011236 ($0.0106 plus 6 percent interest). At the end of year three, he had $0.01191 ($0.011236 plus 6 percent interest). This process is called compounding and continued for Chris until today, 515 years later. How much has good ol' Chris finally accumulated for retirement?

Donate to JWR


The answer is somewhat more to Chris' liking. At the end of 515 years of compounding the original penny at 6 percent interest, Chris has $107,775,640,215.56. (That's 107 billion, 775 million, 640 thousand, 215 dollars and 56 cents.) That's a lot of pocket change!


None of us will live that long, but all of us will have more than one penny to invest and the ability to compound our investments at higher rates of return.

Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.

To comment or ask a question, please click here.


"Tiptionary 2: Save Time and Money Every Day with Over 2,300 All-New Tips"  

TIPTIONARY 2 offers advice for every household problem under the sun. With hints, tips and strategies for finances, family, food, home, cars, travel and holidaysits like having all the advice your mother ever gave you, but you promptly forgot, collected into one compact volume. TIPTIONARY 2 is a handy and humorous guide to making the most of your time and money. TIPTIONARY 2 picks up where the book Tiptionary left off, complete with over 2,500 new tips. Sales help fund JWR.


Previously:


Cyber shopping and debit cards do not mix
Readers' wisdom
Teach teens about money
How to wipe worry from your life
The Case of the Frugal Florist; more
Readers' wisdom
Some ‘green’ for the environment and your wallet, too
Navigating a new rental
Try the store brand — you might like it
Readers' wisdom
Professional Help for Your Financial Future
How to disinfect cold-water laundry; spouses having their own credit card accounts
Readers' wisdom
Get your ceiling fan spinning in the right direction
Kicking and screaming into a cashless society
Don't Underestimate the Emotional Payoff; stinky towels
A tip for fall gardening

© 2007, Creators Syndicate

Columnists

Toons

Lifestyles