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Cool Visual of Compound Interest


Broeb22
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I stumbled on this video and the first that popped into my head was how this video illustrates well the concept of compound interest. While this audience likely gets compound interest, there may be others around you who don't that this would be interesting to.

 

The most relevant piece is below, but the full video is below that.

 

 

Full video:

 

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I stumbled on this video and the first that popped into my head was how this video illustrates well the concept of compound interest. While this audience likely gets compound interest, there may be others around you who don't that this would be interesting to.

 

The most relevant piece is below, but the full video is below that.

 

 

Full video:

 

 

How does this relate to compound interest? I don’t see it.

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The one with rapid drop (#3 from top) had much higher force to start with, but didn't have sustained force after the initial one. Think of hedge funds who show rapid returns during early years (with tiny AUM) and then fail to show sustained momentum.

 

The middle one has the right amount of early force and sustained momentum. To compound you need sustained returns until you get to the finish line.

 

I stumbled on this video and the first that popped into my head was how this video illustrates well the concept of compound interest. While this audience likely gets compound interest, there may be others around you who don't that this would be interesting to.

 

The most relevant piece is below, but the full video is below that.

 

 

Full video:

 

 

How does this relate to compound interest? I don’t see it.

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I’ve been told how people in general are wired to think linearly. We can easily understand how 1+1=2 or 1+1+1+1+1+1=6 but we can’t as easily think exponentially.

 

It’s like the old “trick question” that asks if a pond has lillies growing on it and the lillies are doubling in number every day and the pond is half covered after 29 days, how many more days will it take to fully cover the pond? The vast, vast majority of people will get this or similar questions wrong.

 

 

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