Let’s say you are an investor who starts with $100. You roll the dice and make 50% on your money one year. You are quite the genius! How much do you have now?
100 x 1.5 = 150
Wow! Things are going great for you. Roll again right? This time you lose 50%. How much do you have now?
150 x .5 = 75
Ouch. One year up 50% and one year down 50%, and overall you are down 25%.
Roll again, right? Say this year you are up 25%. How much do you have now?
75 x 1.25 = 93.75.
Dang! Three years and you’re still behind.
Ok, can we start over? No, you can’t. You wasted three years of time and some money.
Now let’s say your more conservative sister didn’t take such wild gambles. She started out with $100 and got a dull 10% this first year. (Remember when you were laughing at her?)
100 x 1.1 = 110
The next year she got 11%. A little better.
110 x 1.11 = 122.1
The third year she got a measly 6%.
122 x 1.06 = 129.42
Think about this. What happens if it goes on like this for 25 years?
More tomorrow…
This is what’s needed to be taught in our schools
Very clear explanation and love the video!