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On the contrary, it has taken me years to unlearn compound interest. When you start with relatively little, compound interest is relatively very unhelpful - it

On the contrary, it has taken me years to unlearn compound interest. When you start with relatively little, compound interest is relatively very unhelpful - it compounds wealth and benefits people who have started with something more than you. Twice as good at nothing is still nothing.

joshspankit 7y ago
As much as I dislike seemingly knee-jerk contrary statements against “known-good” knowledge, I feel that there is an important point here: aggressively attempting to compound interest is a poor use of time when you only have, say, hundreds of dollars. Better to focus on compound interest “in the background” while optimizing for growing capital or income-generating skills.
- truculent 7y ago
  So, essentially: compound interest is something wealthy people are good at because it's useful when you are wealthy. Not because learning about compund interest will make you rich?
  - cyborgx7 7y ago
    I find that most legitimization attempts for wealth end up being circular if followed to their logical conclusions.
  - Amygaz 7y ago
    Yes, it’s vastly easier even Buffet says so. He only started really using compounding has his core strategy when he already had his first billion (he was 60). Then his fortune doubled a few times in the space of 20 years. People can search YouTube for the interview.
  - solipsism 7y ago
    For the vast majority of people, the best thing they can spend time on to improve their financial situation is increasing their hourly wage or salary.
- Kye 7y ago
  This is so true. I invested what little money I had to spare in music. Everything I made with it went back in. The return is more than I would have gotten from interest or things like stocks and bonds. ~2% is great if you're doing okay financially and have a good career. It's useless if you have any marketable skill that would benefit from spending what you can spare on tools or services. A pair of good mixing headphones in 2017 paid for itself by 2018. It would have only been an extra $2 in a savings account. That investment paid for a MIDI controller that came with Ableton Live Lite. That helped pay for an upgrade to Suite during a sale less than a year later. All the money I spent on the controller and Suite upgrade would amount to barely $30 a year in savings interest. That's not going to help me with the tiny but still greater income built on those investments.
  - nickcoury 7y ago
    This is in line with the point of the original comment, which wasn’t just about investing money. That comment mentions self-development but it’s the general principle of reinvesting gains in something that is increasing in value. In your case you are reinvesting gains from your music career back into your music career which is currently increasing in value. The principle is that this will let your career grow at increasing rates.
    - Kye 7y ago
      Looking back at the comment, I see what you mean. Foiled again by posting before fully waking up.
  - alexilliamson 7y ago
    Can I ask how you're making that money back? Gigs? An album?
rfc 7y ago
Alright, I'll bite. This is such a victimhood mentality and a ridiculous statement. I wasn't wealthy when I started investing. Hell, the first dollar I put into my long term portfolio was when I was living in my car! I started with ~$200 that I made from doing a collection of odd jobs (mowing lawns, computer repair, moving dirt, etc.). Every extra penny I made went into investing into a moderate portfolio focusing on high yield dividends (4-6%). As I've grown in my career, got married, etc., I've kept effectively the same principles. I now get great passive income after 10 years of doing this and it's only getting better with each dollar we put in. It is possible with the right mindset. In an investing group that I'm part of, my story is the norm - not the exception.
- Kye 7y ago
  >> "It is possible with the right mindset. In an investing group that I'm part of, my story is the norm - not the exception." Two words: selection bias. That your path worked for you does not mean it's the only wise path for every circumstance. The path of most people around me is their savings get destroyed by surprise medical or repair bills because they were born into poverty and never get a chance to build meaningful savings. So it's better to spend it on something while you have it on things that can't be taken away in a bankruptcy. Most people (in this context) make the mistake of spending it on drugs, worthless trinkets, junk food, etc. Most aren't encouraged to pursue skills that can pay the bills. Or they're actively discouraged. "Crabs in a bucket" is a real mentality. People I grew up around have it. I had to hide my interest in entrepreneurship just to protect it from sabotage. I'm glad you were in a situation that enabled your path! It's great that you were able to thrive through early savings. I don't know when you came up, but cheap and functional cars are hard to come by in a post-Cash for Clunkers world and police are more aggressive with the homeless/car-homed. Your path is not as viable in the US in 2019.
  - snikeris 7y ago
    > Most people (in this context) make the mistake of spending it on drugs, worthless trinkets, junk food, etc. Most aren't encouraged to pursue skills that can pay the bills. Or they're actively discouraged. "Crabs in a bucket" is a real mentality. People I grew up around have it. I had to hide my interest in entrepreneurship just to protect it from sabotage. These are the people most in need of the concept of compound interest. If they knew that small steps every day can lead to big outcomes, they would be more inclined to take them.
snikeris 7y ago
Sure, on an absolute basis, someone who started with more than me will end up with more. But why does that matter to me? I only have my current resources to consider. We all have some resources at our disposal. Understanding that slowly growing them over time can really add up is helpful regardless of where you start. In fact, I'd argue that knowledge of compounding is more helpful for those with little. Wealthy people aren't in need of more wealth, so the concept is less useful for them.
- Spooky23 7y ago
  Habits are hard to break, it’s important to seed good ones. Saving that $300 puts you in a better place than someone who squanders all of their cash. When I was starting out at work, nothing irritated me more than people bitching about how underpaid and poor they were, who somehow found the cash to burn up their earnings in cigarettes and to be out drinking all weekend.
jumbopapa 7y ago
One of my favorite Charlie Munger speeches seems relevant [1]. > I have a friend who carried a big stack of linen cards about this thick, and when somebody would make a comment that reflected self-pity, he would take out one of the cards, take the top one off the stack and hand it to the person, and the card said, “Your story has touched my heart. Never have I heard of anyone with as many misfortunes as you. Sure, you might not start with as much as someone else. That doesn't change the effects of compound interest - you can still have have an exponential return. [1] - https://jamesclear.com/great-speeches/2007-usc-law-school-commencement-address-by-charlie-munger https://jamesclear.com/great-speeches/2007-usc-law-school-co...
- auiya 7y ago
  That's quite a concerted way of displaying his complete lack of empathy. Imagine if he put the same effort into bettering humanity rather than chasing wealth and snubbing nose.
  - jumbopapa 7y ago
    Are you really implying that Charlie Munger hasn't bettered humanity? He has given money generously and created wealth for countless people. It's not lacking empathy. At the end of the day the only thing you can remain control of is your attitude. Are you going to let unfortunate circumstances continue to ruin your life or are you going to do something about it? Charlie developed this thinking when he son died of leukemia at age 9. He was devastated, but he decided it wasn't going to be a drag on the rest of his life.
    - auiya 7y ago
      Philanthropy on that level is generally done to protect one's wealth from taxation, and has little to do with moral compassing, empathy, or generosity.
  - eigenvalue 7y ago
    It's not about displaying empathy, it's about addressing what will actually help the person, and complaining almost certainly won't. The quote continues: "Well, you can say that’s waggery, but I suggest that every time you find you’re drifting into self-pity—I don’t care what the cause, your child could be dying of cancer, self-pity is not going to improve the situation—just give yourself one of those cards. It’s a ridiculous way to behave and when you avoid it you get a great advantage over everybody else, almost everybody else, because self-pity is a standard condition and yet you can train yourself out of it."
foobarbecue 7y ago
Exactly. People talk about compound interest as of it can make you rich. It can't. It might multiply your wealth by 2 or 3 in a country where the difference between rich and poor is a factor of 100.
- refurb 7y ago
  So it sounds like it can significantly increase your wealth.
chrisweekly 7y ago
Compound interest works in both directions. Those w/ few resources are at risk of taking on debt -- which can quickly become crippling thanks to compound interest charged by lenders. I'd argue that understanding the perils of compounding interest on debt is even more important than understanding the benefits wrt investment. [EDIT: PS Apparently Albert Einstein agrees: >"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."
6gvONxR4sf7o 7y ago
It's all relative. If $X is a lot to you, k^t * $X is even more. In forty years, the stock market has gone up about 30x, while the dollar has gone up a little below 4x, meaning money invested would have really grown almost 8x. So if you can afford to squirrel away 1/8 of a meaningful amount, then it'll have been be useful to you when you're older. Sadly, a huge number of people can't do that. If your bills are $1000/mo and you earn $1001/mo, and invest the entire excess, when you're old, you'll have below $8 for every month invested today, which is meaningless compared to your expenses. 8 times nothing is nothing. But if your bills are $1000/mo and you earn $1130/mo and invest the entire excess, it'll entirely pay for a corresponding lifestyle when you're old. Perhaps a more important lesson in that case is compound interest on debt. If you borrow money from a credit card company, you can get exponentially fucked. The lesson may not be that compound interest gets you wealthy, but it's certainly that compound interest can make you worse than broke.
dang 7y ago
We detached this subthread from https://news.ycombinator.com/item?id=21582782 https://news.ycombinator.com/item?id=21582782.

joshspankit 7y ago

As much as I dislike seemingly knee-jerk contrary statements against “known-good” knowledge, I feel that there is an important point here: aggressively attempting to compound interest is a poor use of time when you only have, say, hundreds of dollars. Better to focus on compound interest “in the background” while optimizing for growing capital or income-generating skills.

truculent 7y ago
So, essentially: compound interest is something wealthy people are good at because it's useful when you are wealthy. Not because learning about compund interest will make you rich?
- cyborgx7 7y ago
  I find that most legitimization attempts for wealth end up being circular if followed to their logical conclusions.
- Amygaz 7y ago
  Yes, it’s vastly easier even Buffet says so. He only started really using compounding has his core strategy when he already had his first billion (he was 60). Then his fortune doubled a few times in the space of 20 years. People can search YouTube for the interview.
- solipsism 7y ago
  For the vast majority of people, the best thing they can spend time on to improve their financial situation is increasing their hourly wage or salary.
Kye 7y ago
This is so true. I invested what little money I had to spare in music. Everything I made with it went back in. The return is more than I would have gotten from interest or things like stocks and bonds. ~2% is great if you're doing okay financially and have a good career. It's useless if you have any marketable skill that would benefit from spending what you can spare on tools or services. A pair of good mixing headphones in 2017 paid for itself by 2018. It would have only been an extra $2 in a savings account. That investment paid for a MIDI controller that came with Ableton Live Lite. That helped pay for an upgrade to Suite during a sale less than a year later. All the money I spent on the controller and Suite upgrade would amount to barely $30 a year in savings interest. That's not going to help me with the tiny but still greater income built on those investments.
- nickcoury 7y ago
  This is in line with the point of the original comment, which wasn’t just about investing money. That comment mentions self-development but it’s the general principle of reinvesting gains in something that is increasing in value. In your case you are reinvesting gains from your music career back into your music career which is currently increasing in value. The principle is that this will let your career grow at increasing rates.
  - Kye 7y ago
    Looking back at the comment, I see what you mean. Foiled again by posting before fully waking up.
- alexilliamson 7y ago
  Can I ask how you're making that money back? Gigs? An album?

rfc 7y ago

Alright, I'll bite. This is such a victimhood mentality and a ridiculous statement. I wasn't wealthy when I started investing. Hell, the first dollar I put into my long term portfolio was when I was living in my car! I started with ~$200 that I made from doing a collection of odd jobs (mowing lawns, computer repair, moving dirt, etc.). Every extra penny I made went into investing into a moderate portfolio focusing on high yield dividends (4-6%). As I've grown in my career, got married, etc., I've kept effectively the same principles. I now get great passive income after 10 years of doing this and it's only getting better with each dollar we put in. It is possible with the right mindset. In an investing group that I'm part of, my story is the norm - not the exception.

Kye 7y ago
>> "It is possible with the right mindset. In an investing group that I'm part of, my story is the norm - not the exception." Two words: selection bias. That your path worked for you does not mean it's the only wise path for every circumstance. The path of most people around me is their savings get destroyed by surprise medical or repair bills because they were born into poverty and never get a chance to build meaningful savings. So it's better to spend it on something while you have it on things that can't be taken away in a bankruptcy. Most people (in this context) make the mistake of spending it on drugs, worthless trinkets, junk food, etc. Most aren't encouraged to pursue skills that can pay the bills. Or they're actively discouraged. "Crabs in a bucket" is a real mentality. People I grew up around have it. I had to hide my interest in entrepreneurship just to protect it from sabotage. I'm glad you were in a situation that enabled your path! It's great that you were able to thrive through early savings. I don't know when you came up, but cheap and functional cars are hard to come by in a post-Cash for Clunkers world and police are more aggressive with the homeless/car-homed. Your path is not as viable in the US in 2019.
- snikeris 7y ago
  > Most people (in this context) make the mistake of spending it on drugs, worthless trinkets, junk food, etc. Most aren't encouraged to pursue skills that can pay the bills. Or they're actively discouraged. "Crabs in a bucket" is a real mentality. People I grew up around have it. I had to hide my interest in entrepreneurship just to protect it from sabotage. These are the people most in need of the concept of compound interest. If they knew that small steps every day can lead to big outcomes, they would be more inclined to take them.

snikeris 7y ago

Sure, on an absolute basis, someone who started with more than me will end up with more. But why does that matter to me? I only have my current resources to consider. We all have some resources at our disposal. Understanding that slowly growing them over time can really add up is helpful regardless of where you start. In fact, I'd argue that knowledge of compounding is more helpful for those with little. Wealthy people aren't in need of more wealth, so the concept is less useful for them.

Spooky23 7y ago
Habits are hard to break, it’s important to seed good ones. Saving that $300 puts you in a better place than someone who squanders all of their cash. When I was starting out at work, nothing irritated me more than people bitching about how underpaid and poor they were, who somehow found the cash to burn up their earnings in cigarettes and to be out drinking all weekend.

jumbopapa 7y ago

One of my favorite Charlie Munger speeches seems relevant [1]. > I have a friend who carried a big stack of linen cards about this thick, and when somebody would make a comment that reflected self-pity, he would take out one of the cards, take the top one off the stack and hand it to the person, and the card said, “Your story has touched my heart. Never have I heard of anyone with as many misfortunes as you. Sure, you might not start with as much as someone else. That doesn't change the effects of compound interest - you can still have have an exponential return. [1] - https://jamesclear.com/great-speeches/2007-usc-law-school-commencement-address-by-charlie-munger https://jamesclear.com/great-speeches/2007-usc-law-school-co...

auiya 7y ago
That's quite a concerted way of displaying his complete lack of empathy. Imagine if he put the same effort into bettering humanity rather than chasing wealth and snubbing nose.
- jumbopapa 7y ago
  Are you really implying that Charlie Munger hasn't bettered humanity? He has given money generously and created wealth for countless people. It's not lacking empathy. At the end of the day the only thing you can remain control of is your attitude. Are you going to let unfortunate circumstances continue to ruin your life or are you going to do something about it? Charlie developed this thinking when he son died of leukemia at age 9. He was devastated, but he decided it wasn't going to be a drag on the rest of his life.
  - auiya 7y ago
    Philanthropy on that level is generally done to protect one's wealth from taxation, and has little to do with moral compassing, empathy, or generosity.
- eigenvalue 7y ago
  It's not about displaying empathy, it's about addressing what will actually help the person, and complaining almost certainly won't. The quote continues: "Well, you can say that’s waggery, but I suggest that every time you find you’re drifting into self-pity—I don’t care what the cause, your child could be dying of cancer, self-pity is not going to improve the situation—just give yourself one of those cards. It’s a ridiculous way to behave and when you avoid it you get a great advantage over everybody else, almost everybody else, because self-pity is a standard condition and yet you can train yourself out of it."

foobarbecue 7y ago

Exactly. People talk about compound interest as of it can make you rich. It can't. It might multiply your wealth by 2 or 3 in a country where the difference between rich and poor is a factor of 100.

refurb 7y ago
So it sounds like it can significantly increase your wealth.

chrisweekly 7y ago

Compound interest works in both directions. Those w/ few resources are at risk of taking on debt -- which can quickly become crippling thanks to compound interest charged by lenders. I'd argue that understanding the perils of compounding interest on debt is even more important than understanding the benefits wrt investment. [EDIT: PS Apparently Albert Einstein agrees: >"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."

6gvONxR4sf7o 7y ago

It's all relative. If $X is a lot to you, k^t * $X is even more. In forty years, the stock market has gone up about 30x, while the dollar has gone up a little below 4x, meaning money invested would have really grown almost 8x. So if you can afford to squirrel away 1/8 of a meaningful amount, then it'll have been be useful to you when you're older. Sadly, a huge number of people can't do that. If your bills are $1000/mo and you earn $1001/mo, and invest the entire excess, when you're old, you'll have below $8 for every month invested today, which is meaningless compared to your expenses. 8 times nothing is nothing. But if your bills are $1000/mo and you earn $1130/mo and invest the entire excess, it'll entirely pay for a corresponding lifestyle when you're old. Perhaps a more important lesson in that case is compound interest on debt. If you borrow money from a credit card company, you can get exponentially fucked. The lesson may not be that compound interest gets you wealthy, but it's certainly that compound interest can make you worse than broke.

dang 7y ago

We detached this subthread from https://news.ycombinator.com/item?id=21582782 https://news.ycombinator.com/item?id=21582782.