Tag Archives: Compound Interest

The Five Simple Rules to Investing | TD Ameritrade

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Investing does not have to be complicated and can be a hedge to expected strong inflation.

https://youtu.be/NxEcO7ITtMo
 

“Global investment managers are more worried about the risk of inflation on markets than they are about the risk of Covid-19.” Bank of America survey

72% of global fund managers expect strong inflation to be transitory, despite US prices surging 5% year-on-year in May, according to Bank of America’s latest survey. The Bank of America survey polled 224 managers with $630 billion in assets under management between March 5 and 11, 2021.

In their collective opinions, trillions of dollars in federal stimulus spending in the United States helped set the economy on the path to recovery, but it’s also fueled concerns about ballooning levels of debt and the rapid inflation that could accompany the injection of so much money into the fragile economic system, according to an article in Forbes. 

Despite the risks, investor sentiment overall is still “unambiguously bullish,” the survey found, with 91% of fund managers expecting a stronger economy in the future and nearly half of fund managers are now expecting a v-shaped recovery in global markets. 

“Investors (are) bullishly positioned for permanent growth, transitory inflation and a peaceful Fed taper,” said Michael Hartnett, chief investment strategist at BofA, adding that 63% of the investors believe Fed will signal a taper by September.

References:

  1. https://www.forbes.com/sites/sarahhansen/2021/03/16/inflation-not-covid-19-is-now-the-biggest-risk-to-markets-bank-of-america-survey-shows/?sh=6f5fd2db3b1f
  2. https://www.reuters.com/article/us-markets-survey-bofa/investors-see-transitory-inflation-and-peaceful-fed-taper-bofa-survey-idUSKCN2DR0Z9

The Magic Penny…The Power of Compounding

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Imagine that a stranger walks up to you tomorrow and either offers you a one time payment of one million dollars ($1,000,000) in cash now or offers you a ‘magic penny’ that doubles in value everyday for thirty-one days.  In other words, when you wake up the next day, you miraculously have two pennies; on day three, four pennies; on day four eight pennies, and so forth.

Which would you take?

Believe it or not, thanks to the magic of compounding, the ‘magic penny’ would be worth over $10 million dollars after thirty-one days.  In other words, you would be better off taking the ‘magic penny’ than accepting a one-time payment of $1,000,000.  The illustration below shows the math:

Starting to save for retirement late can greatly reduce your overall nest egg

Investing Early Is Crucial

Getting started saving and investing early is perhaps the most important retirement axiom in personal finance.  The magical penny not only provides a vivid example of the sheer power of exponential growth, but also helps reinforce the value of early savings. By missing just the first nine days of the thirty-one days results in a significant difference in final outcome in accumulated values.

Reference:

  1. https://www.forbes.com/sites/shaharziv/2019/07/30/can-you-correctly-answer-the-magical-penny-question