Compounding

In 1626, Peter Minuit was said to have bought the Manhattan Island from the local Indian inhabitants for a load of cloth, beads, hatchets, and other odds and ends then worth 60 Dutch guilders equating to around $24.  If that amount was invested instead at 8% return annually and left to compound (grow) how much would it be now (2010)?

• What if only half of the income (4%) was invested and the other half spent every year?
• What if all the 8% return was spent every year while leaving only $24 principal intact ?

Answers:
$164 trillion, $83 million, $24.
(You may email Ms. HeaRty for the formula)

Above you can see the effects of compounding; it’s basically return on return, interest on interest. It is the way creatures multiply so fast and wealth increases over time.

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About the contributor:
Finance Dude
The writer is a financial planner, investor, speaker and a self confessed cheapaholic. (Cheapaholic- a term he invented to mean someone who is addicted to being very cheap).  Send in your questions.  He will try to answer any questions you might have, preferably on finance and money matters.  Although he does not object to questions on love and relationships, he never had one and due to his extreme cheapness, will probably never have one (In case you’ll send it mistakenly, he promised to forward it to HeaRty).

Disclaimer: Advice posted in this portion is merely opinions and views of the writer.  It does not constitute formal advice.  The writer will not be responsible for any of your gains or losses. If symptoms persist, contact your trusted financial planner.