The Power of Compounding

[Howdy Doody]

Hi all,

I was just having a conversation with a colleague about my profit in last nights OzLotto. On a $19.80 investment I managed to make a 3.8% profit. Not bad for one nights work. However he thought it was rather dismal. So I said well if I made 3.8% every day for a year on that $19.80 I'd have a pretty tidy amount. He didn't believe me so I wrote an application to calculate it. The grand total after one year was $16,784,042.70 . I've uploaded a file of the day by day calculations for the disbelievers.

Cheers,
Ben

 

[Belu]

close - dont count the first year as zero, cant make a profit after no time has passed (in effect your using 366 days)

i got $16,169,597.98 using the trusty financial calculator. The only problem is that the lotto doesnt go everyday and the odds are crazy

to win tattslotto its a one in 8.5mil or something, and ozlotto is about 1 in 56mil from memory.

 

[Howdy Doody]

Yes you are right Belu. One to many days in my calculations. Luckily for me 2008 is a leap year and actually contains 366 days. Looks like I lucked out on that one

 

[Rixter]

You gotta love the magic of time over compounding growth.

80% of its growth is made in the last 20% of its time!

Thats the power of compounding for you

 

[feihong]

sports betting is a much better way of making consistent profit, check out betfair forum! With compounding effect, your profit from betting can go very fast. Just remember, don't bet on games with high volatility such as soccer and golf. Baseball and tennis are usually the two best sports to bet on, as they have lower volatility and momentum (winning/losing streak) is a hefty contributor towards the outcome.

 

[Brenda Irwin]

Luckily for me 2008 is a leap year and actually contains 366 days.

Ooh, must remember that for the 08-09 tax. Every bit of extra depreciation helps.

 

[Chris.R_WA]

Ooh, must remember that for the 08-09 tax. Every bit of extra depreciation helps.

Actually, not to be nitpicky - but the extra day falls in the 07/08 tax year

But you do have to pay an extra days interest

 

[Sunfish]

I've been toiling for near 50 years now and in the first 40 I struggled, and to be honest, never thought I'd get far. About the only thing I did right was to live within my means, avoid divorce and pay off my house.

80% of its growth is made in the last 20% of its time!

The last 20% has seen a massive turn around so I'll endorse that.

No one else in the family has any concept of that though. Strange. Maybe I should tell the boys more.

 

[Kenster]

80% of its growth is made in the last 20% of its time!

Always wish I had known this magic years ago

Can't wait to see what it's like the next 20%

 

[want2bewealthy]

Youd make a tidy profit by something I heard from an investor, here it is,

Just say a farmer asked you to work for a certain wage for a month and you said to him, no, I want to do it like this, you pay me 1 cent on the first day, the next day you can double that, next day double that, and so on, hed think this is almost too good to be true, working for 1 cent a day!

day 1/1 cent
day 2/2 cents
day 3/ 4 cents
day 4/8 cents
day 5/16 cents
day 6/32 cents
day 7/64 cents
day 8/$1.28
day 9/$2.56
day 10/$5.12
day 11/$10.24
day 12/$20.48
day 13/$40.96
day 14/$81.92
day 14/$163.84
day 15/$327.68
day 16/$655.36
day 17/$1310.72
and so on.

 

[Ausprop]

was one of the points of a D&G show I saw on property prices - argued the folly of compounding by suggesting that if house prices continued at x% rate price growth then one house would cost all the money in the world and some. We all know that if inflation continues on compunding at 3% without exception then there will come a time when we will need to tear up our currency and start again - a bit like trashing the 1 and 2c coins

 

[alexlee]

was one of the points of a D&G show I saw on property prices - argued the folly of compounding by suggesting that if house prices continued at x% rate price growth then one house would cost all the money in the world and some.

This assumes the supply of money doesn't increase or increases slower than housing prices. Which is crap. The current problem is that money supply is increasing far too much.

We all know that if inflation continues on compunding at 3% without exception then there will come a time when we will need to tear up our currency and start again - a bit like trashing the 1 and 2c coins

That just means dropping a few zeros here and there, as some countries have done without major issues. Or you just issue notes in larger denominations. With so much electronic banking it's not as big an issue anyway.
Alex