Online Stock Trading

I have always been interested in the long term implications of short term modifications to the inputs into exponential growth formulas. To examine some examples of these implications, I have made several models that are graphed to illustrate the solid conclusion that if at all possible, you should never pay yourself. At least not too early. Let’s use the following scenario:

You invest $1,000 in the stock market and earn a 17% return every other month (which is a little worse than I’m averaging as of this post), for 5 years. If you never touch it, you would end up with $111,064.00:

Now let’s say you just never felt very good about never rewarding yourself along the way. You could either a) pay yourself a fixed reward, or b) pay yourself a percentage reward. By taking even a meager $30 out every other month (perhaps for the latte fund), your new growth history would look like this:

You would have, during the course of those 5 years (or 31 periods) withdrawn $930, but you would end up with only $89,339.54. Ouch. You would have robbed yourself of $22,724.46. Instead, by taking out a constant percentage, say 10% of your gains, your results would be as follows:

You would have been able to reward yourself much more (by matching the reward with the gain), but still the end result is similar. You would have, by pulling out $7,408.66 as a wage, robbed yourself of $35,977.45 in the end. It turns out that waiting as long as possible is better in two ways: 1) you can let these incremental rewards make money for you, and 2) when you do finally earn a payoff, you can give yourself much more:

Here, by waiting until the beginning of the fifth year, you can haul out a full $10,000, and during the course of the rest of the year your investments will completely recover. You get paid significantly more and you end up with more in the end.

Now I have to go figure out how else I’m going to pay for lattes.