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Fold a piece of paper 8 times to understand investing

Hint: It’s all about exponential doubling

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As Mythbusters once demonstrated, exponential doubling makes it impossible to fold an 8½ by 11-inch sheet of looseleaf in half more than 8 times. Using a steamroller, a forklift, and a sheet of paper the size of a football field, you can just barely get to 11 folds.

All of this is a demonstration of the power of exponential doubling. The first time you fold the paper, it becomes twice as thick as a single sheet. The second time, it becomes four times as thick, then 8x, then 16x, and so on. By ten folds, the wad of paper is more than 1000 sheets thick; at 20 folds, you’re at a million layers.

What does this have to do with investing? When you invest, the interest on your money earns interest. With the right interest rates and timespans, that leads to exponential growth. If you get 5% interest on $100, you’ll have $200 in 14 years. And in another 14 years, you’ll have $400.

Exponential doubling is how investing gets astonishing.

As with the folding paper, it’s when you double the third, fourth, and fifth times that things get really interesting. Not many investors get the rates or the time to make that happen, but knowing that it’s possible — and that you don’t even need a forklift to do it — should make everyone an investor.

#investing #origami #reality check

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Compound interest, defined

It’s how your savings can grow exponentially, and it’s how the rich stay rich.

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🌰 In a nutshell: When your money makes money. Or to put it another way, interest on interest. Compound interest is how your savings can grow exponentially, and it’s how the rich stay rich.

OK, let’s put on our math helmets. Ready? Don’t tighten the chin strap too much. Alright: Say you put $100 in an account with a totally gettable 5% annual interest rate, giving you $105 in a year’s time. In two years, you don’t just have $110 — you have $110.25.

That’s because your original $100 — the principal — earned you another $5, and the first year’s $5 — the interest— earned you a quarter. The combo of these two is why it’s called compound interest.

That extra quarter isn’t much, but hold on tight. In 10 years you’ll have $162.89; in 25 years you’ll have $338.64; and in 50 years you’ll have $1,146.74. All starting with $100, a 5% interest rate, your math helmet, and a whole lot of patience.

👶 Tell a toddler: You know how a snowball gets bigger if you roll it down a hill? The snow that it gathers on the first roll gathers more snow, which then gathers more snow, and soon you’ve got a speeding snowball that’s as big as a house! Watch out! And that’s compound interest.

💬 In a sentence: “Contrary to popular belief, Albert Einstein didn’t say that compound interest is the most powerful force in the universe. Turns out he was more interested in quantum physics than personal finance. Still, it’s pretty powerful.”

👊 Why compound interest matters

It’s how the rich stay rich. There are two ways to make money: Through your work or through your money. Guess which one is taxed at a better rate? This is why you never see a billionaire sweat.

🌎 IRL: Grace Groner bought $180 worth of shares in Abbott Pharmaceuticals in 1935. She worked as a secretary at the company, lived a simple life, and always reinvested the dividends. When she died in 2010, her estate was worth more than $7 million. She gave it all to her alma mater, Lake Forest University, and it’s estimated to have helped more than 1,000 students.

🔀 See also: The Rule of 72, Origami.

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Knitcoin #3: Squirrel Spends!

Welcome to Knitcoin, our third short video for short investors. 🌰 Squirrel’s made a friend! Give Owl a name! 🌰 How much does Owl’s flower cost? How can you tell? 🌰 What’s the greatest thing that money can buy?

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Welcome to Knitcoin, our third short video for short investors.

🌰 Squirrel’s made a friend! Give Owl a name!

🌰 How much does Owl’s flower cost? How can you tell?

🌰 What’s the greatest thing that money can buy?

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Just buy the haystack

Because the haystack is a metaphor for the market

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Jack Bogle became a financial legend not by knowing how to play the market, but by knowing that no one knew how to play the market.

The founder of Vanguard , who died at the age of 89 last year, was called the father of the index fund. The concept was simple: If we know the market is going up, why don’t we just buy the market? Don’t mess around with individual stocks; take the safest route available, preferably with dollar cost averaging, and relax. Or as Bogle put it: “Don’t look for the needle in the haystack. Just buy the haystack.”

“Just buy the haystack” is Jack Bogle’s legacy

The Vanguard Index Fund, introduced in 1976, has generated an 11% average annual return. But the real payoff is how it has transformed the market: It’s estimated that 43% of all stock funds are now index funds. That means nearly half of the market is made up of people who bought the haystack. Isn’t it time to join them?

#haystacks #index funds #investing

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Knitcoin #2: Squirrel Invests!

Welcome to Knitcoin, the second in our series of short videos for our shortest investors. 🌰 What is Squirrel doing with his money? 🌰 What happens when you do this in real life?🌰 Does money grow?

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Welcome to Knitcoin, the second in our series of short videos for our shortest investors.

🌰 What is Squirrel doing with his money?
🌰 What happens when you do this in real life?
🌰 Does money grow?