To explain how interest rates work and how they can make us earn money, will use the game of golf as an analogy: Let’s say that we are going to play and bet 10 cents on the first hole, doubling the bet on each hole; How much would be betting? As well, if these familiar with the game of golf, know that they are 18 holes, so much can be bet at 18 holes? Well, let’s see how it increases the bet on the first 9 holes: as you have seen, we are betting $25.6, but this not is here, see how is going into the following holes: as you can see, the 18th hole bet up to an incredible $13.107! that’s the power of compound interest. I would like to illustrate an additional point: halfway you’ll see that the growth is small, but with a little patience you will see your money reach a critical point, at which begins to grow exponentially. In fact, pit 15 to the 18th hole it becomes $1638 $13107, in just 4 easy steps! Now ask, what would have happened if you retirabas in the pit 10? You would have lost more than $13000 in possible gain if you play better golf than me is why we must have the money generate interests and wait until the magic of compound interest allows us to earn money. You’ll see: the vast majority of people begins with, let’s say $300 saved each month, but as we saw at the beginning, we did not win much; many then lost patience and withdraw the money. Here another example of how $300 per month can give you money after 30 years invested. -Without earning interest, leaving the money under the mattress of the bed or in a shoe box, $ 300/month accrue $108400 in 30 years.
-5% Annual interest, the $ 300/month would generate $245.609 (2.3 times the principal sum)-8% annual interest, the $ 300/month would grow to $425.283 (4 times the principal sum)-15% annual interest, the $ 300/month would grow to $1.69 billion (15 times the principal sum)-25% annual interest, the $ 300/month would grow to $13.14 billion (121.6 times the principal sum) is unreasonable to think that we are going to earn 25% of annual compound interest for 30 years? It is not unreasonable, but it is not very easy. Warren Buffet, inverter extraordinary, achieved an average gain of 25% for 50 years, but he is the exception to the rule. What would be the interest that we could be pointing? I would say that 8% annual interest is adequate; any business or investment, which appear you selling with higher interest rates, I would say that it is very risky and we should let it go. While it is true that Wall Street, and its main indicator, the Standard & Poor s 500 (S & P500) has generated profit of 12.08% per annum over the past 50 years, is no less true that many companies and individuals offering exorbitant profits that are nothing but deceptions, or pyramids that do not reach anything and only make you lose all your money today appear (such as the very famous Madoff case or case back in) Venezuela).