Would you bet against me by 10 Cent In A Game Of Golf?

To explain how interest rates, and how they can make us earn money, use it as the game of golf analogy: Say you're going to play and bet 10 cents on the first hole, double the bet on each hole, how much would be betting? Well, if you're familiar with the game of golf, you know that there are 18 holes, so how much can be bet for 18 holes?

Well, lets see how increasing the bet in the first 9 holes:

As you can see, we are betting $ 25.6, but that is not here, let's see how it goes in the following holes:

As you can see in the hole 18 bet up to an incredible $ 13,107! that's the power of compound interest. Let me illustrate an additional point: midway you will see that the growth is small, but with a little patience you will see your money to reach a critical point, which begins to grow exponentially. In fact, the hole 15 to hole 18 goes from $ 1638 to $ 13,107, in just 4 steps!

Now I ask, What would have happened if you retreat into the hole 10? Had lost more than $ 13,000 in potential profit, if you play better golf than I am) This is why we have the money to generate interest and wait until the magic of compound interest allows us to make money. You see, the vast majority of people start with, say $ 300 monthly savings, but as we saw earlier, we do not win much, so many lose patience and withdraw money.

Here is another example of how $ 300 a month can give you money after 30 years invested.

-Without earning interest, leaving the money under the mattress of the bed or in a shoebox, $ 300/month accumulate $ 108,400 in 30 years.

- At 5% annual interest, the $ 300/month would generate $ 245,609 (2.3 times the principal amount)

- At 8% annual interest, the $ 300/month would grow up to $ 425,283 (4 times the principal amount)

- 15% annual interest, the $ 300/month would grow up to $ 1.69 million (15 times the principal amount)

- At 25% annual interest, the $ 300/month would grow up to $ 13.14 million (121.6 times the principal amount)

Is it unreasonable to think that we will earn 25% interest compounded annually for 30 years? It is not unreasonable, but it is very easy. Warren Buffet, investor extraordinary, has achieved an average gain of 25% for 50 years, but he is the exception to the rule. What interest would we be targeting? I would say that an 8% annual interest rate is appropriate, any business or investment, you appear selling at a higher interest rate, say it is very risky and we should let it go.

While Wall Street, and its main indicator for the Standard & Poor's 500 (S & P500) has generated annual profits of 12.08% over the past 50 years, it is also true that today many companies are and individuals offering exorbitant profits are nothing but deception, or pyramids that do not come to anything and just make you lose all your money (like the famous case of "Madoff" or case "back" in Venezuela).

How soon will I double my money? Albert Einstein once said once, about a question which was, in his opinion, the Eighth Wonder, "For me, the eighth wonder of the world is compound interest?. He came to decipher what is known as the "Rule of 72?, Which determines when your money can be doubled.

In our example, if you're going to have 8% annual interest, it means that your money will double in value every 72 / 8 = 9 years. For a return of 20% annual interest, your money could double every 72/20 = 3.6 years.

We must have the discipline to get that money for our expenses, the wisdom to choose a financial instrument that we generate constant interest and long-term insurance, and the patience to let your money grow with the magic of compound interest.