My 11yo the junior investor!

Great job for your kid and well done, but don't fall in love with compounding presentation because in reality compounding works very different than what is written on paper.

How many financial planner has a graphs showing you if you invest this much and it grow 8% compounding a year you have this much by retirement? I said more than 50% never get there and the one that get there chipped in a lot more and a lot more skills than just compounding so

let me spoiled a little party on compounding and I am pretty sure many of you experience it otherwise we all be billionaire and millionaire with time but few ever reach that state it is not because compounding doesn't work, it works but other variable spoiled it and only a few exceptional individual that manage to avoid the dreaded negative years.

Compounding works on the basis you NEVER get a negative return year and you get uniform return (is this possible in real life? hell no) , averaging look good on paper again it a little different in real life, without cost and other friction that chip away your money so it nice if it in a vacuum seal but otherwise it still a hard yakka

Once you get a negative year the based is reset and compounding start from a lower based
and it could set you back 2-3 years and sometimes even longer and hence none of us becomes very rich with just simple compounding, you have to have skill to grow your capital and avoid the negative return.

so to bust the myth you can becomes rich with compounding when you earn a lot, put away a lot and get a high return on your investment and that the only way it can counter negative years.

maybe there should be a thread what financial planners and finance gurus don't tell you about compounding

 

Thanks for the tips and feedback @Spiderman. I am trying not to interfere too much in what he wants to write - but I will suggest to add the inflation to all columns in his table. He wanted to do the $ sign. I agree the disclaimer somewhere on the site is probably necessary. Tom loves Raiz but I certainly do not want it to be a sales pitch for Raiz so i have asked him to research other similar products and also mention managed funds etc. However it is so good for kids that Raiz lets you deposit as little as $5 at a time, meaning he can put his pocket money in each week. He is planning to elaborate more on shares, ETFs, managed funds and the like in his next update.

 

very true, the table is simplified for kids and it is hard to allow for negative years so he used an average of 8% to demonstrate the compounding effect.

 

he has always been very good at maths, so naturally became interested in money too. we bought the game "Cash Flow" to play with the kids when they were 8 and 9yo and he became obsessed with it. he will even play in on his own! then i guess because he was interested, my hubby and i started telling him more about our properties, the income and expenses. when i had one property on airbnb, it was his job to enter the new bookings and income on a spreadsheet. now he does my monthly property spreadsheets and knows more of the costs etc than i do!

 

he's super switched on!

 

It works both ways. I feel your comment is a cop out. ( An Excuse)
Its non linear but its non linear on the way up.

You can have a 7% drop 2012 than a 16% increase in 2013 and vice versa obviously.

The issue in wealth is no one regularly puts away and compounds.

Up until recently history you could have averaged 6% + by just holding money in term deposit.

 

Im starting to teach my 6 year old about money / compounding he put away his saving from the piggy bank and bought some shares (ETF) that he watches weekly and you should see his face at divined time.

I wish my parents me this when i was young . The mistakes I would have avoided. hahahah