Compound Interest

I tweeted today about the power of compound interest, but some seem to have had an issue with it.

Here are my 240 characters on the power of investing early.

Your $5 Starbucks Latte has an opportunity cost of over $168K. How?

250 Average working days in a year: 250*$5 = $1250/yr

With a ZERO dollar initial investment.

$1,250 invested each year in a fund/stock w 10% annual return = $205,617 in 30 yrs.

Interest Income: $168,117

The major issue most had, was that it was impossible to achieve that return. I don’t think that the purpose of the tweet was to demonstrate that. It was more to demonstrate the importance of saving and investing early. For instance, the rule of 72 is a convenient method to calculate the amount of time in which your investments will double, given a certain interest rate.

For instance, at 8% a year, you initial capital of $100 will become $200 in 72/8=9 years.

Otherwise, it can be difficult to research assets or investment classes that will average the market return to 10% per year for 30 years. This can get complicated as capital structure evolves with time, and going back far enough, you may simply not have the asset.

Here’s a paper that explores the average rate of return over the last century for different asset classes.

Dow Record

The Dow set a record today that made the index cross past the 29,000 mark briefly.

The blue-chip index crossed the threshold in morning trading before turning lower. It closed near session lows, down 133.13 points, or 0.5%, at 28823.77, after earlier rising as high as 29009.07.

The major stock pulling the index down was Boeing, that slipped over 1.9% during the trading day. The company has been through its fair share of troubles, with a plane crash in the most recent piece of news.

The exact cause of the crash has still not been identified and recent coverage has been mixed. For some, this was an “accidentally” or a “deliberately” fired missile. More here.

In other news for Boeing, former CEO Dennis Muilenburg won’t get severance and must forfeit stock awards worth tens of millions of dollars. An unfortunate career-ending for a decade long career at Boeing, but one that is rightly deserved given the corporate negligence.

He forfeited unvested equity awards that could have been worth as much as $31 million if certain targets had been exceeded, Chicago-based Boeing said Friday in a regulatory filing. Muilenburg, 56, also won’t receive a bonus for 2019.

Canadian Employment

The data about Canadian employment was released today, and unemployed fell.

Canada’s economy created 35,200 jobs in December, Statistics Canada said Friday in Ottawa. That brings the total number of jobs added to 320,300 this year, the second-most since 2007. The unemployment rate ticked down in the month to 5.6%, from 5.9% in November, and wage gains decelerated to a still-healthy 3.8% from a year earlier.