I've been recently thinking a lot along the lines of this article, which is why I was surprised to see this being given, as positive advice:
> Make that extra money work for you. Invest into diversified index funds so you can use the power of compound interest, and use that “free money” in the later stage of your life. The earlier you invest, the better it is.
It surprised me because what prompted me to think about the other points the article makes was realization that compound interest is a lie.
I've written about it previously here[0][1]. It's not that the math of compounding is wrong - it's that, in terms of saving money in our economy, a typical person is unlikely to gain any meaningful amount of money through compounding. The rates are too low. If you're lucky enough to front-load your savings early then maybe you'll get something useful out of them... around retirement age. Which is, like the article points out, not exactly the best time to enjoy your wealth.
This isn't to say you shouldn't save or invest your money - just that you shouldn't rely on interest rates to do anything for you. There are opportunities to multiply your wealth faster - if you're willing to shoulder the high risk of losing it. But low-risk options available are so bad that mentioning compound interest is just... noise. Distraction.
"Compound interest" is a generic term; it does not refer specifically to low-risk investments. You can invest in a stock index fund and still refer to "compound interest" in that context.
The average return of the MSCI World index since creation is more than 10% I believe… And for a long term investment the risk is minimal (there has never been a negative period of more than 8 years)
Bank interest rates are near zero. Return rates on assets are much larger. Many Londoners are out-earned by their houses, especially once you take tax into account.
> Make that extra money work for you. Invest into diversified index funds so you can use the power of compound interest, and use that “free money” in the later stage of your life. The earlier you invest, the better it is.
It surprised me because what prompted me to think about the other points the article makes was realization that compound interest is a lie.
I've written about it previously here[0][1]. It's not that the math of compounding is wrong - it's that, in terms of saving money in our economy, a typical person is unlikely to gain any meaningful amount of money through compounding. The rates are too low. If you're lucky enough to front-load your savings early then maybe you'll get something useful out of them... around retirement age. Which is, like the article points out, not exactly the best time to enjoy your wealth.
This isn't to say you shouldn't save or invest your money - just that you shouldn't rely on interest rates to do anything for you. There are opportunities to multiply your wealth faster - if you're willing to shoulder the high risk of losing it. But low-risk options available are so bad that mentioning compound interest is just... noise. Distraction.
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[0] - https://news.ycombinator.com/item?id=26637164
[1] - https://news.ycombinator.com/item?id=27838926