Bitcoin Forum

One of the best know says of Warren Buffet is "It is not about timing the market, it is about time in the market". What he means that if you let the interest compound over a long period, the results can be amazing.

Independently of the style of investment (crypto, fixed income, variable rent, high yield, ...), it is good to take a look about what compounding can do for you. Please, note that you would need to subtract inflation and that can be big in some countries if you only invest locally.

These are very simple simulations that shows you how far can your saving and investing go. In each one you put an initial amount on an investment and then you add a bit more each year.

For each case, you get the final amount on money you get depending on the average yield that your investment gives you (this not mathematically accurate, but is good enough. For example, the SP500 index in the past usually yields 6% and is considered a quite safe investment. I have calculated for 6%, 12% and 18%. I call this, the boring 6%, the "nice 12%" and the "the gods love me much 18%" average yield a year.

This will give you the graphs and results for 17 years. Why 17? No particular reason :)


SIMULATION 1: Initial savings 5000, and you won't add anything else.

https://i.imgur.com/zDpiNpz.jpg

As you can see, a final capital of 13.000 is perfectly achievable with a 6% yield, while you can dream of 83.000. This is not bitcoin remember :)


SIMULATION 2: Initial savings 1000, and 1000 more a year.

https://i.imgur.com/2avJBEu.jpg

Better results overall, with a basic of 31000 and a dreamy 104 if you catch a great decade of yields.

SIMULATION 3: Initial savings 5000, and 1000 more a year.

https://i.imgur.com/1ypLtzo.jpg

Better results overall, with a basic of 42,000 and a dreamy 170,000, this looks like a great option.

Notice that this is not USD specific, so 170,000 may not be "dreamy" in your currency. However, if you think of it, it should not be difficult for the average joe to save 100 dollar or euros or pounds a month in OCDE countries, and the effects on retirement can be noticeable. See a previous post on that here. (https://bitcointalk.org/index.php?topic=5324430.msg56584571#msg56584571)

Its funny. Recently I've seen few people talking about that a lot. Few youtube videos. Even whole youtube chanel focused on similar strategy - https://www.youtube.com/watch?v=vffTJV0IzHM

Why its funny? Because we are currently during "bubble of everything". Not only bitcoin is mooning. Everything is. And now, when people like Michael Burry (Big short movie was based on his prediction of 2008 crash) is screaming to watch out - 'Big Short' investor Michael Burry says the stock market is 'dancing on a knife's edge' - and fears he's being ignored again (https://markets.businessinsider.com/news/stocks/big-short-michael-burry-warns-stock-market-huge-risk-crashing-2021-2-1030106969) YouTubers appeared out of nowhere, now, with approach that - market is super easy - just buy whatever and hodl. Why not 10 years ago? We have a record number of retail investors on the markets. Even high schools students have robinhood installed and gamble their savings. Mostly on popular stocks, mostly sp500. Every experienced investor should see a red light here. Its not good time for investing in the most overvalued stocks (SP500)


No. Sp500 is not "a quite safe investment". It is  'dancing on a knife's edge'. Remember "past performance is no guarantee of future results"

I feel the problem with dcaing might be that people get different amounts of disposable income throughout the year (eg holiday seasons). So it's tough for a lot to stick to a tight schedule.

I was investigating the march 2020 drop last year and the s&p500 went down to the price it was in January 2019 (which is a tiny drop to make the news)...

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I saw a suggestion for people having children to save £5000 for each when they're born so that they'd have £1.5M when they retire (using a reasonable growth of 10% a year).

That 1.5M would then yield ~£20k a year in income adjusting for inflation of 2% (if you don't cash out the stocks and just mainly get your money from dividends at 4%).


Some things in the stock market are weird atm and I'm not sure if governments have a plan to get out of them but with most of Europe being over leveraged in almost every way I can imagine they'll come up with a way to make it benefit them...

That being said, the next industrial revolution is claimed to be decentralisation so the more work you can do on yourself and your own skills the better. There's a massive skills deficit in everything atm imo which is a bit of a shame (a lot of people chasing safe money is why jobs pay so low).

True, it does not guarantee future results, but long term it is certainly quite safe. It is a well know fact that there is not any period of 20 years in all the SP history that has yielded negative results and, as average, it yields around 6%. In fact, stocks are actually safer than bonds even the popular belief is the opposite.

Even for shorter periods of time, e.g. 10 years, you would really need to buy at a extreme market peak to loose money. See that my post specifies that the results are dependent on the decades that lie ahead, which are said to be not that great.

I do agree with you that during the last 12 months, anyone could make a 25% without much thought.

https://static.seekingalpha.com/uploads/2012/1/5/142439-132581853693408-Nick-Gogerty_origin.png

We are currently at a extreme market peak. Market peak that was never seen before. Its first time that we see a real economy recession without SP500 going down. Stock markets are completely detached from reality,
detached from the real economy. Fed is printing not only tons of money. Its printing new history. Results will be unpredictable. It may end up ok, it may not. We can look back on charts and predict future, but ... history when those charts were taking place painting candle after candle are from different economy situation we have now. Its like driving a car watching in back mirror all the time and predict that we should drive straight only because we were going straight in the past. We should rather look forward and make our decision based on what we see now.

Investing is very hard and comes with huge risk. Don't let youtubers convince you its just "buy the dip and hodl" only because it works for them for few months (especially the most popular sp500) .

The ultimate display of compounding interest I've seen can be found in gambling of all places.

Games in sports with even odds (EV) payout 100% compounding interest on a win.

Which might lead to someone asking: how much compounding interest could theoretically be earned beginning with $0.01 hitting 20 bets in a row at even odds?

$0.01
$0.02
$0.04
$0.08
$0.16
$0.32
$0.64
$1.28
$2.56
$5.12
$10.24
$20.48
$40.96
$81.92
$163.84
$327.68
$655.36
$1310.72
$2621.44
$5242.88

A person could theoretically take 1 cent and compound interest it into more than $1 million dollars. If they could hit 28 bets in a row at even odds.

Its not the traditional financial plan that advisors or get rich quick for dummies book authors would recommend. But like they say thinking outside the box might lend a valuable & worthwhile perspective at times.

Traditional investments, historically follow a similar growth curve (as you've posted). Although I don't know if I would want to be invested in markets in an era when gamestop angles, NFTs and markets were behaving erratically. That coupled with massive stimulus spending and business lockdowns might not be the best idea. Market fundamentals appear to be headed for a negative growth contraction. Inflation protected assets are what will be in high demand. If anyone can acquire reliable access to them.

wallstreet learned this lesson 100 years ago..
wall street doesnt hoard/hodl
they day trade.
because they have such low fees because they are at the central partnership with exchanges they day trade at the micro penny level. taking small amounts 0.05% every hour which add up and add up(1.2%/day)

i learned this lesson in 2012
well. kinda. as i only play with a small percentage of my hoard to avoid risk
but that small allotment .. i dont just leave it on an exchange doing nothing for 100 days hoping to 2x those funds. instead i day traded it
1% a day is better then waiting 100 days for 100%
5k turns to 13k by taking daily 1%..
   1% movements happen soo many times its hard to avoid an oppertunity
5k turns to 10k by waiting for 100%..
   100%(2x) happens so random. it can happen in 3 months or 3 years. no guarantees

so if its good for wall street. its good for smart bitcoin traders. plus its also less risky.. just dont get too greedy thinking you can micro-hodl for 5-10% or you could be losing out by waiting longer. missing out on more the 5-10 opportunities for 1%(netting you 5.1%-10.4% respectively and more frequently)

If you were to start early and have a lot of money invested that is compounding overtime, say around 10k USD was invested with around 3.875% Annual Rate and a timeframe of 30 years, the total interest  incurred would be around 21,919.35 USD and that is if you only invested the principal amount of 10k USD and not continuously dropping some money every month to increase the principal amount. I think that as a business minded person, we should exploit the idea of compound interest because in our retirement we need a lot of money because we will not be able to work all the time.

I wouldn't call 10% a "reasonable" growth.

Inflation is the problem with all of this, if one in a hundred does this it will not matter if anyone will be doing it then where will all that required value in goods to balance this will come from? The thing works when people buy 1 million worth of bonds but it won't once they try and buy 10 trillion, the bonds will go into negative.
Will it work for the stock market? It will just overinflate the price and then god help you if you're the one just entering retirement when this pops as the first generation that has achieved 100x gains cashes out and only 1/100 gets put back in!

It's one of those things that work best if only you are the one doing it and not on a national scale.
Quite ironic if I think of this twice, you need people to spend around and not save money so you can get a sure profit from saving.

It is clear that investing in the markets over the long term can give us very good returns, especially if we take into account compound interest. A 6% return, OK. 12% is a bit difficult for a retail investor, and 18% is directly impossible.

It is normal to consider that an S&P 500 fund will give you returns of 10% and inflation will take away 3%, leaving you with a net 7%. We have to think that there are people who invest in actively managed funds or other indexed funds that give lower returns. Some may give more, especially in the short and medium term. The SP500 is often considered the benchmark.


If the Sp500 is not a safe investment, nothing is. Past results, of course, do not guarantee anything, but they serve as a guide. Companies work if they beat inflation, otherwise they tend to disappear. What will the 500 largest U.S. companies do in the next 30 years? If we discount events such as the coming of the third world war, it is normal that they will continue to grow and beat inflation.



Why? It's the average.



This example is too exaggerated. We have no rational reason to think so. We might as well stop going out on the street just in case we get hit by a lightning and it kills us.

I feel like listening to a broker or an insurance agent while reading about compounding. It's the usual marketing strategy  ;D

The case where I'm from might not be exactly the same with the US but yeah it's not the right time for stocks.

I'm lucky enough to have joined a group managed by someone who has vast experienced in trading/investing. He's been calling out retail players to be like water and switch to crypto since early 2019 instead of being stubborn losing on stocks.

Are you referring to the Gig economy?

Any technique that is used for savings is good if we talk about the crypto market. I say this because I have been able to save with a small capital with the Staking method for a period of one year. The capital and profit have allowed me to solve family commitments so far this year.
Some have been unexpected such as the sudden trip of a nephew out of the country and another the illness of a relative that with the traditional method I would never comply, I should also mention that I live in a country where inflation affects our quality of life. That is why crypto is playing a great role in offering coin holders the opportunity to save and take advantage of ROI.

Undervalued value stock are much better (there are value and growth stocks). As I said above. We have recession now in real economy. Sp500 is mooning. Stock market is currently completely detached from real economy. In next 5 years real economy can shrink 50% while stock value may shrink 90-99%. Its not 1970. Its not 2000. Its 2021. Stock market is now a casino for teenagers. Stock prices does not represent value from real economy. They are not based on fundamentals.

Good stock to invest now is a company with low P/E, with repeatable profits, based on strong tech, with at least 4-5% dividend. Wallet should be diversified to different countries, to different currencies, to different investment products. Its the only way to safe as much purchasing power of your investments in next few years. Of course we may not crash this or next year. But tje problem with "buy every dip and hodl" strategy is that every other strategy creates repeatable profits and protects your wallet, while the other one is like martingale system in casino. You earn,
you make fun of other, more cautious investors unless you hit black swan and whole your wallet is gone.



You are looking back to a times where stock markets and real economy were totally different as they are now.

Why?
This what happens with the pension system, contributions go down and spending goes up as the population grows older on average.
The same will happen on any system that needs constant money inflow, in order for somebody to make a profit somebody must come in with that money, when everyone is making a profit, where is the money coming from?
At one point the rate of growth will start going down and if it gets worse the bubble will pop and all your profits will do the same. Of course, the cycle will repeat itself over and over again but the problem is what happens if you're the unlucky one caught at the wrong moment and you won't make it to the next bull run. Besides, my example was targeted at what happens when everybody rushes to those "bulletproof" earning schemes, and we have enough evidence in the past about it.

Saving is good, investing part of your saving is also a good idea, but again, it will not work if every single person on this planet switches to it and thinks now all the money problems in the world are solved.

let me try to see from the point of personal understanding based on experience in calculating averages that are given when investing. to get an accurate equation, the next most important step is to determine the price at the break-even point.


Usually this method is applied to the break even chart, so that the amount or price can be determined that can break even or create the level of profit sought.

With the equations obtained through the analysis of accounting methods, the calculation of price, break even point, contribution margin and profit is obtained. then we get the existing grudo flat rental price curve. Overall, in the basic concept of investing, the greater the income generated, the higher the value of a property.


If something wrong, let me know right away  :)

Apart from all the calculations, compounding the interest is the way to become rich sooner but if you are talking about stocks it may take too long. Which may not be tolerated by someone who is literally new and want to become rich quickly, if they had luck they can be one but 99% they are going to rekt their balance when they are day trading the stocks.

I'm not but that's likely going to be part of it.

There's a larger amount of companies that have been moving communications reams to places like India for example for a cheaper rate and this will continue to be done. I don't know if all or many of the larger companies will make it through this (and incurring the losses of waiting for the next quarter to find out if they've made a profit could become problematic).

There are moves to take a socialised approach to old initiatives which may win out of they manage to get enough people interested in using their services (they can still issue bonds instead of shares to raise capital).

There's also companies like uber and amazon doing more tradition gig economy stuff.

This is an interesting topic you started here. I fully agree with you that long term savings was pretty nice in the past when you were able to get 6% interest. However we are living in an low interest rate world for almost 10 years now. The banks are offering less than 1% on our savings while inflation is atleast 2%. I would argue that saving in the traditional sense is not working anymore. It might be risk free,but it won't yield any returns. If we want to make money we need to take risks and go into more attractive investment forms.

If that is the best plan then why not enrol into NPS kinda stuff? Like national pension scheme where government could yield you more than 30-40% for your retirement money. Obviously this is all about how much you input into the plan and for how long(!) These things are like how you manage your portfolio right from the beginning. One more thing is, you must start very early in your age. For example, someone's parent inputting money into their child's wealth plan can start as early as their 18th age. If same scheme is applied by someone at the age of 30's then it would turn the returns upside down.

There are many government schemes and if we start them at the right time then one could actually get bigger returns for sure.

I think this theory & long term investment does not focuses on knife's edge theory. For example Warren Buffet was one of the biggest loser at the time of 2008 Crash because most of his stocks would have crashed terribly and there is no chance he can sell of that large amount of holding quickly so all of his loss was unrealized loss which has eventually turnwd now intor profits. But market always does recover and when it does even the 2008 crash looks like a small correction. But yes it's risky if you are expecting to take out money in short term like 4-5 years. When we say average 6% yield it's obviously no guaranntee that you get a 6% each year but some years would average out the others. This is how this theory works.

I've been fascinated by compound interest since I was a little boy with a savings account at my local bank--that's why PoS coins and related ones that pay what amounts to compound interest have always been favorites of mine (even though I don't currently own any). 

And yeah, Buffett is correct about "time in the market".  It's amazing how much can be earned with a dividend reinvestment plan if you just stick with it long enough (I'm talking about the stock market here).  But the same is true with any crypto that pays "interest" and compounds upon that interest.  It's too bad there aren't that many coins doing that.  ETH 2.0 is one of them, and from what I've read it's been quite popular so far.  Anyway, putting your money to work for you is the best thing you can do with it.

I came across a saying some few months ago. The saying goes thus, you can't save your money to wealth.
I found out some years ago in a book one particular thing about every wealthy person. It is how that they understand the power of investment and the power of compound interest. This is what differentiates the rich from the average from the poor.
The rich invest and employ the power of compound interest to multiply their money. The average invest but only use simple interest while the poor don't invest at all.
I need not tell anyone on this forum the power of compound interest over simple interest

It's not the first time we've actually seen this. It's known as a K shaped recovery as part of the economy recovers faster than the rest (typically the remote online stuff). We saw the same thing in 2006-2008.
Most of Europe has been getting 60%+ of their wages also over the past year and they'll have funds in the S&P500 (since its a global fund).

This might be a better chart to look at for visualisation of what's happening: https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart

(the paying people's wages in a downturn is generally what a government should try to do anyway and it hasn't cost them much - UK's was about half of its annual expenditure normally for 80% of wages to be covered).

So that's why I always lose, been holding for years and waiting, yet I get nothing but loses, not only money but also time. I haven't read any tips about trading and now I am gaining some ideas that want be to cash in and day trade. I tried to day trade years ago buy failed manage get even .05 %, and it was because of lack of knowledge. I guess everything has its basics after all. I was young and naive, now I have refreshed my thoughts and itching to go out and trade some.

This is provided that you have the necessary consistent funding that you will then save and compound. Some people don't have that luxury although it is inarguably a good way to earn in this market. There are plans and techniques on the other hand that could solve this money issue, which the poor should know more about.

Even when you factor in huge corrections that the market invariably suffers quit frequently, the stock market returns an average of 10% per year.  The longer you're in the market, the better off you are statistically because the effect of corrections is smoothed out of recognition over long periods of time.

You can invest with whatever amount you can afford. There is no hard or fast rule for the minimum amount of investment and saving in bitcoins.
Even if you invest less in bitcoin and apply the compounding strategy, it will be beneficial for you in the long run.

It seems to me very exciting to get a comfortable retirement, yes, this saying is absolutely correct. It is mainly about time. All those who sold bitcoin early are very regretful and wish they had kept it until now, not only Bitcoin but many altcoins have achieved amazing heights. at the long term.
 In any case, this is really an interesting strategy. It is not necessary to store bitcoin. You can invest in any currency in the long run and you are sure to get amazing results. But I would like to point out that this will not work in countries that suffer from major economic problems, because investment in the local currency will be a loss in this case because this currency constantly loses its value over time.

Yea its so funny to lock my investing capital for 10 years to ... break even XD Or ... in fact, be 20-30% short thanks to inflation and a decline in purchasing power of my money.

Investing is not as easy as you guys think. I suggest you all to read this book:
The Black Swan - The impact of the Highly Improbable.

When you are experienced investor you know that something Highly Improbable is about to happen when retail investors, a nutrient for big fish, is super confident about any investment type. Time will show. It is possible that nothing bad will happened, and we will see ~10% annual growth in next 50 years. It is also probable that we will see strong 70-90% crash and recover to break even after 50 years (in fact still -90% thanks to inflation).

Compound interest is great, but with interest rates being so low, it is not an Inflation beater.  ::)

It would have been interesting to see if someone made a comparison between someone buying $100 worth of bitcoins every month, since 2010 and someone saving $100 with interest in a Bank with compound interest.  ::)

I bought bitcoin when the price was between $300 to $400 and I sold some of those bitcoins at $47 000 ..... Do you think compound interest would have given me higher returns on my investment if I simply left it in my Bank account with compound interest? (Noooo way in hell)  ;D

Yea but you compare 2 completely different things. Little to zero risk investment (but still some) with high risk investment. I can go even further with this logic. My friend bought a lottery ticket and won. 3$ investment turned into 1 mln $ in 1 day. Try to do it with bitcoin "(Noooo way in hell) " :)

I am behind on you in investing because only we will know how much money we should use to invest in anything we want, whether investing in bitcoin or the other type of investment. In this matter, I think consistency will be necessary to always invest in bitcoin and for how long we will invest. Maybe we can use monthly to buy bitcoin in some amount of money, and we always do that every month for one year. That can make us have bitcoin, and when we can reach one year and the price increases, we will profit from the money we use to invest.

Good luck with picking undervalued stocks. There are thousands of funds around the globe try to pick the best undervalued stocks and they don't outperform the S&P 500.


It's always different. That was said also 5, 10, 50 and 100 years ago.


I understand what you say about the pension system being a kind of Ponzi scheme, but applying it to markets is based on the fallacy of seeing wealth as a pie rather than a field of fruit trees. Wealth is the bundle of existing goods and services. If we create more and more goods and services and conserve some of the goods that were produced in the past, we can all become richer and richer. So this is not a zero-sum game where for me to win you have to lose. We can both win.

I'd rather do the cost-averaging in stocks/cryptomarket than to do it on bank because savings account with the bank will never make you reach since the interest is very low and the inflation rate continues to rise over time. If you want a sure long term profit investing, then this can be a good option but if you want to have a more active, and profitable investment for your retirement, choose the best market for that.

Government scheme is not the best place to do these kind of analysis because not everybody can get into government and that scheme is also automatic for the government employees who are lucky to have government job because monies will be deducted automatically for the purpose of retirement while you get monthly payment also.
Like the pension scheme, your money is sent into it for you but for individual who is not employed by the government, this is a difficult task to do if such person is not prudent and wise to invest. Early investment is good but not many are employed at this early youth age and that is why you have large number of poor old people especially in third world countries.

Compound interest and investment are different things. You still made more money than anyone made from investing as well, but what you should compare is buying a stock and holding it or buying gold and holding it, those didn't earn that well during this period neither but if you were smart enough to pick the right stocks you could have made more than compound interest in the banks as well.

Compound interest in banks is something only the people who are not sure about what to invest does, they prefer safety and they do not invest it, they just leave it there to accumulate, they are not after making a profit, they are thinking "well the other option was making zero", because they are not investing it. But you invested into bitcoin, you took a risk, and that risk is zero in compound interest, which is why you deserved more money when that risk paid off.

But you can't win indefinitely at the same pace.
Wealth is also limited, global wealth increase is simple when you have an increasing population and a lot of it is going from the lower class to medium income and from there to higher income levels but that will not work endlessly.

First, the population growth is in decline meaning the demand for goods will also show a decline in growth, you can't have double the consumption with the same population, even if those people have more money to spend it will hit a bracket when there is no more growth, you can't have more cars than your population driving around, you can't have more tourist a year than the world population, and there will never be a whiskey consumption of 20 tons per person no matter the wealth of the world.

But, there is a second trigger, and here we were talking about investing and saving and I was saying from the first post that it will not work if everyone will be saving because if everyone does this there will be no more people spending, there will be no increase in demands for goods and services, there will be no companies reporting earnings over earning, your orchard will produce a lot of fruit nobody is interested in buying since everyone is planting trees and growing fruit.

You just have to choose the right one to invest in like Index funds or stocks which has a steady growth of around 5 to 6 percent and Warren Buffett loves Index Funds because it gets more profit on the long term compared to actively managed funds. Compound interest looks small because it is in annual based but if you were to consider holding long term, that compounding goes high although it will not be as big as crypto but it is a money that already insured and has the government backing so you don't have to worry about it.

it is true, nothing is a quite safe investment, and SP500 is not either
but, looking at long term, SP500 should follow industry progress, and should bring some ROI on your investment, good or bad, that is a question

what all of those do not mention, is that with 6% you are actually losing money, since 2% inflation is merely calculated with bread and milk prices, and you would not buy just bread and milk, with all investments in the bag, inflation is rather 7-10%, not below 2% - just looking real estate and stock prices, since those are the one which you will invest your money, not in the tone of bread

with all said, it is hard to find good investment, and all are risky
this does not seem as best time to put your money in stocks, but it is not the best time to keep it with you either, what do you propose as alternative?

1- Majority of them
2- did not outperform S&P500 during "gaminied investing around bubble of everything" during best USA era.

Nothing will last forever.

Isn't the issue here you need to withdraw some part of the money at some point for expenses?

You will get penalties if you withdraw it and there is no some part of the money invested when it comes to investing outside of bitcoin, you will have to withdraw it all out. The point of compounding is to grow your money on a long-term basis. You also shouldn't be investing if you are going to spend it in the end, you have to have a considerable amount of money so you can invest without the worry of withdrawing the money.

That is why index funds are so attractive. If you take the costs of buying and selling individual stocks into consideration, or even the management fees of active managed funds, then you need to out perform the market by a few percent each year. Nonetheless owning stocks was very profitable in almost every year in the past. The returns are much higher than what you get for savings account or money market fund.

Compounding must be an amazing way to gain over the time but I guess no investment opportunity do grow over the time; only bank deposits for interest gaining will grow over the time. I believe we are all already into compounding by long-term holding along with buying at dips. After 2017, bitcoin never has fallen below $3k hence if you are holding since 2017 and buying at dips then you might be enjoying compounding in crypto space. Yeah, holding with long term plan is nothing short of compounding.

Your simulations are good but I like to see them for bitcoin investments. We can easily do that for a signature campaign participant who is participating campaigns for years as they get chances to hold and bigger chances to add time to time.