January 1, 2009

Foreign currency trading – In long-term reinvesting, the rate of increase on capital invested can be more important than the amount saved from salary.

To show the full effect of a difference in the rate of increase, we need to include what happens after a man has retired from earning an income and, instead of further reinvesting, is spending his income from capital. Continuing the last example, suppose that after thirty years of saving, Brown and Black both begin to spend their income. On Brown's $11,540 capital, he receives 3 per cent income, or $346 a year. Black's income, including growth in value of stock, is 9 per cent of $17,400, or $1,566. Black's retirement income is more than four times as large as Brown's, although he saved only half as much from salary as Brown did. That a difference in the average annual rate of return, or in the length of time an investment is held, can develop such a contrast in long-term results as shown above is a major factor in causing investing to be such a queer business.

Foreign currency trading – In long-term reinvesting, the rate of increase on capital invested can be more important than the amount saved from salary.

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