Cash is Trash
by Howard Katz
You have probably been taught that the responsible way to handle your economic affairs was to work hard, be thrifty and invest safely. This is what the old timers did, and it worked for them. When they reached 65, they were able to retire
However, the old timers lived in a country on the gold standard. They went to work at age 16, saved 15% of their income each year and put it in the local savings bank at 5% interest per year. Let us do a little 8th grade math.
Assume an average wage of 30 oz. of gold per year. Saving 15% of that means saving 4½ oz. per year. At the end of a 49-year working lifetime, you have saved 220½ oz. of gold.
Now listen closely because what happens next is so astonishing that it was called a miracle: the miracle of compound interest. When you lend money at interest, in the first year you get the agreed upon rate. If you lend $100 at 5%, you get $5.00. It is in the second year, that the miracle starts. In the second year, you don’t merely get another $5.00. In the second year, you are not lending $100; rather you are lending $105, and at 5% this produces an interest of $5.25.; so at the end of the 2nd year you have $110.25. This is interesting. Not only is your capital growing; it is growing at an increasing rate.
Now to calculate what 5% interest does to your capital over a 49-year working life span is a long, difficult problem in 8th grade math. But I was a bad boy one day and had to stay after school, and so I calculated what 5% interest does to capital over a 49-year period. The answer, to cut to the point, is that it multiplies it by 4.25. So, the man who saves 220½ oz. of gold will, after 49 years at interest at 5%, have 220.5 x 4.25 = 937 oz. of gold. That is, you saved 220½, but you have 937. This so impressed the people of the 19th century that they called it the miracle of compound interest.
So here you are at age 65 with 937 ounces of gold in the savings bank. You can stop working, continue to draw interest on your capital, and you will receive 5% x 937 oz. = just shy of 48 oz. of gold per year. In other words, you can stop working and receive 50% greater salary than you did when you worked.
This was a wonderful system. It no longer exists, but it is very important if you want to know what to do with your wealth today and how to survive in the modern economic climate. To read the full article, click here…
March 30th, 2009 23:32
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April 1st, 2009 02:08
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June 9th, 2009 23:30
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September 27th, 2009 13:53
the Internet is such a great medium and resource and I thank you for taking the time out to write, it is always a pleasure to read.
September 27th, 2009 19:31
I remember when a few of my assocs started investing in gold 10 years ago. Wish i’d paid more attention. They have made a fortune.
simon @ jewelry auctions´s last blog ..Saltwater vs. Freshwater – A Pearl Showdown
December 23rd, 2009 02:12
Very nice information. Thanks for this. You really have a very informative site, thank you for sharing!
December 23rd, 2009 02:15
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January 17th, 2010 13:50
With the economic meltdown that we went through, investment in quality gold coins has increased substantially. The 38% + increase in the price of gold and the current price hovering 1100 to 1200 per ounce, has made it a very good investment. However, buying gold coins is not for the faint hearted, or those on a limited budget. There are many individuals selling coins that are fake that one has to be extremely careful. Selecting a reputable dealer will help in buying a genuine coin, but you still need to shop a bit for the best price and coin. I see so many gold coins being sold on eBay, and wonder how many have been taken for a ride. As to your 937 ounces of gold, the current value is in excess of $1,000,000!! I’m a firm believer in having gold in your investment portfolio. Good post.