It is a big joke to realize financial freedom by compounding interest.

First of all, I want to tell you that compound interest is not the result reversal, and financial freedom can not be achieved by compound interest.

Many people who claim the miracle of compound interest will make a serious logical mistake in the algorithm.

What is compound interest? Is interest, the principal has interest, interest has interest, interest has interest.

It looks amazing, but the biggest problem is that it is useless.

Annual deposit 1 10,000, annualized rate 15%, value after 40 years10 million.

This kind of story only exists in inspirational books, and no one has told it.

I have invested the money I bought Lafite in 1982, and the result is worth tens of millions. Because he has a very serious problem, as long as he makes a mistake, he will almost give up all his efforts, so his role is limited to buying two more cups of coffee or eating a hot pot. It is impossible to achieve a miracle.

Experts say the annualized rate is 15%, not 15% every year. Instead, it lost money this year and earned it back next year, with an average of 15%. This is their logical mistake. For example, there is a clothes seller.

Earned 20% in the first year, lost 30% in the second year, earned 50% in the third year, specialized in 15% in the fourth year and earned 50% in the fifth year. Earned10 million in the 40th year. If converted, the annualized income is 15%. Does this person earn10 million with compound interest?

Of course not. People make money by selling clothes. The so-called conversion is to reverse the result, specify a starting point and an end point, and then reverse the compound interest. This is completely different from the leap from the starting point to the end point through compound interest.

Furthermore, it is not so easy to earn back money after losing it. Because the gains and losses are not equal. This is a numbers game. For example, 100 yuan lost 50%, leaving only 50 principal. If you want to get your money back, it's not enough to earn only 50%. You have to earn 100%. Compound interest is not the reversal of the result, but the core of compound interest should be continuity and stability.

Generally speaking, it is to make a little progress every day and pay attention to two key factors: daily and a little. Not today's ups and downs, but tomorrow's ups and downs.

To sum up: to achieve a miracle, you must have enough principal, and the return is orders of magnitude. The threshold from zero to sufficient principal can never be crossed by compound interest.

(This article comes from: He Laoshi said the economy)