compound interest

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Chart: How Are Millennials Investing Their Money?

Hat tip to The Reformed Broker for this thought-provoking chart which will get your students thinking about the importance of asset allocations:

Questions for students:

What Are People Reading on the NGPF Blog?

Getting close to the end of June, so I thought it was worth checking our website analytics to see what new blog posts are garnering attention as the school year wound down in many parts of the country.

Here are the top 5:

Question: What Is Your Most Valuable Asset Today?

Answer: You!

To a student with little in the way of financial assets, this is a critical question for them to answer. Why? Because it provides them with the right mindset as they are coming to conclusions about their post-high school life.

From “Of Dollars and Data,” one of my new favorite blogs:

Nearly all articles written about investment and personal finance (mine included) focus heavily on financial assets despite the fact that most of your value (like mine) is likely not contained within financial assets. Most of your financial value is already contained within yourself, waiting to be unlocked over time. What I am talking about is a concept called human capital, or the value of all of your skills and knowledge. Your human capital can be thought of as an asset that you use to earn money. Understanding this concept should provide the motivation behind why you should save and invest.

He goes on to introduce the concept of present value to come up with a dollar value for human capital based on a future income stream discounted to the present using a discount factor. The example he gives is pay of $50,000 over 40 years discounted at a 3% rate yields a present value of $1.1 million. The point he makes is that human capital is an asset that eventually declines over time which explains why saving is so important.

He provides this nifty graph to display this concept:

Interactive: How Can I Retire Early?

As an educator, I often get this question from students. Yes, I know they have attention spans that are minute to minute (or text to text) but when the subject of retirement comes up, they usually fixate on “How can I get there as soon as possible?”

What I love about this post from Mr. Money Moustache (last seen on this blog in 2014), is the simplicity of his answer and how it all comes down to ONE factor: 

Laura’s Insights: NGPF in the Classroom!

This year, NGPF took our show on the road and taught personal finance workshops in several local schools.  These experiences included a 3 day workshop at the Nueva School (San Mateo), a four session workshop at Castilleja school (Palo Alto), seven sessions with an AVID classroom at Mountain View High School (Mountain View) and our intensive 6 week workshop at Eastside Prep (East Palo Alto). In this post, I will share my experiences at the Castilleja School, an all-girls school just down the road from our office.

Given the time constraints (only 4 sessions), I modified our recently released 8-Hour Workshop and focused on Paying for & Budgeting During College, Understanding Debt & Credit, Why Credit Scores Matter and finishing with a Crash Course in Investing.

In each of the sessions, the girls engaged with the content and asked many great questions. Here were some of my highlights:

Spreadsheet Math: Two Investments Walk Into A Classroom…

Ok, not the best title but let’s run with it. Let’s start with a question:

You have a choice between two investments of $100,000:

  • Investment #1: Earns a consistent 8% return every year (put aside the fact that an investment like this doesn’t exist at the current time; it’s been a while since you could buy a 30 year Treasury Bond with that kind of return).
  • Investment #2: Has an average return of 8% per year but has “lumpier returns” aka it has more volatile returns but the returns each year are in the top 10% of fund returns. Some years it is up, some years it is down, but overall it averages the same 8% return as Investment #1.

Which investment has a higher balance at the end of the 20 year period?

What If…You Had Invested With Warren Buffett in 1965?

Interesting thought experiment (wishful thinking!) that demonstrates the power of compound interest and also that getting the market return over a long period of time hasn’t been a bad strategy either.

Warren Buffett is out with his annual letter for 2016  which is a must-read for investors because of the common sense, homespun advice from the best investor of our time. For those not familiar with Mr. Buffett’s investing prowess, check out the first page of his report which has performance data on his holding company Berkshire Hathaway Hone in on the Compounded Annual Gain (CAG) number at the bottom of the first page and check out the middle column, Per-Share Market Value, and you will see that his CAG from 1965 – 2016 has been 20.8%. Let’s have some fun with an investment calculator and pretend that you were Warren’s neighbor in 1965 and decided to invest $1,000 with Warren (equivalent to $7580 in today’s dollars) AND have continued to hold onto that investment.

Care to guess how much that $1,000 investment in 1965 compounded at a 20.8% rate annually for over 50 years amounts to?

By |February 28th, 2017|Activity, Chart of the Week, compound interest, Current Events, Investing|

Question: What Percentage Of Workers Contribute To a 401(k) Plan?

Answer (courtesy of Bloomberg): About 1/3

Why is this important?

Pensions are becoming increasingly scarce for young people, so the 401(k) will likely become the primary source of financial support for retirees outside of Social Security:

According to a Pew Charitable Trusts analysis of survey data released Feb. 15, only 10 percent of workers over age 22 have a traditional pension. Just 6 percent of millennials have a pension while 13 percent of baby boomers do.

Why are so few contributing to their 401(k)? Here are a few theories: