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You usually don't have 80k lying around at 18, and nobody is going to loan you 80k to invest them (and even if they would, the interest would fundamentally chan
by fabian2k 3y ago
You usually don't have 80k lying around at 18, and nobody is going to loan you 80k to invest them (and even if they would, the interest would fundamentally change your calculation). And 10% returns is rather optimistic, though the number I've seen most often in these kinds of calculations is 6-7%, so it's not that far off.
So this comparison doesn't really make much sense as those students simply don't have the money to invest in stocks instead. The opportunity costs here are the wages they could earn in the meantime.
- ReptileMan 3y ago> And 10% returns is rather optimistic, though the number I've seen most often in these kinds of calculations is 6-7%, so it's not that far off. When we talk about compound interest it is way off. Also sustained growth of that magnitude - especially if we want it above inflation is very hard and has occurred in very rare circumstances.
- Mistletoe 3y agoIt’s not optimistic it’s just the historic returns. >The average stock market return is about 10% per year for nearly the last century, as measured by the S&P 500 index.
- red-iron-pine 3y ago10% is the total return, but you see 6-7% because that's the real growth after inflation, which assumes average inflation of around 2-4%. So you're getting 10%, but in terms of actual, real, concrete gains it's more like 7%. Also remember that's the average so it's possible to see years of 5% and then a few of 14%. The 7% number also looms large because at 7% a year you double your money in ~10.3 years; makes it easy to plan for 30+ year investment horizons.