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When I first learned about this investment problem (although, my version had 18-30 and 30-65), I worked out the math, and I think it held for as low as 2% inter
by rcfox 14y ago
When I first learned about this investment problem (although, my version had 18-30 and 30-65), I worked out the math, and I think it held for as low as 2% interest. I could be remembering wrong though... Surely, someone's done a formal write up on this?
- sk5t 14y agoOne way to simplify the problem is to figure out how much interest income the "early investor" is making at the moment the "late investor" kicks into gear. Obviously if Jane invests from age 16-20 and is now rolling $4,000/yr interest income back into the mix on her 21st birthday, John's yearly contribution of anything less than $4,000 ain't gonna cut it. The Rule of 72 http://en.wikipedia.org/wiki/Rule_of_72 http://en.wikipedia.org/wiki/Rule_of_72 is a really handy tool the layperson can use to get a grip on how long it takes for compounding increases (which is most increases we deal with day to day--taxes, population, traffic) to result in doubling. It makes a much greater impact to say "this town's population will double in 10 years" than it does to talk about 7% growth rates.