Understanding Compound Interest Using Nature’s Examples

compounding miceHumanity’s first experience with compounding – the accumulation of vast numbers through the systematic addition of small sums over a period of time – came from nature, not mathematics.

Thousands of years ago in the Fertile Crescent of the Middle East, ancient humans abandoned their nomadic ways, formed the world’s first communities, and began to till the ground, raising wheat, barley, and other grains. Growing seasons concluded with reaping and storing grain, which was used during months when agriculture was not possible and other food sources were scarce.

But because the large amounts of grain were stored in roofed buildings (silos), they provided an irresistible food source to Mus musculus – the common house mouse – which would feast protected from their natural enemies by the shelter of the silos. As a result, mice became extremely prolific, eventually leading to the spread of mice around the world as they followed migrating agriculturalists. In fact, a single pair of mice can produce 70 offspring during their two-year life, with an average litter of seven pups, five times a year.

The addition of 70 mice over a two-year span would be bothersome, but not catastrophic. A single mouse eats about one gram of food per day; 70 mice would eat about 70 grams, or less than a single bushel of wheat each year. However, when considering the effect of “compounding”, the mice pose a serious threat.

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10 Tips to Save Money & Stay Safe When Holiday Shopping

Christmas shopping woman holding giftsThe holiday season is also the biggest shopping season of the year. The time period from Black Friday through December 24th can mean the difference between an annual profit or a loss for some retailers. As a consequence, retailers advertise sales, extend store hours , and open online Internet storefronts to fulfill the demand for Christmas gifts. Almost two-thirds of shoppers will “showroom” their purchases by checking and comparing products online before venturing into a brick-and-mortar store, and according to The Christian Science Monitor, online retailer Amazon has aggressively matched or beat prices of retail giants such as Best Buy and Walmart.

The holidays are filled with emotion, not the least of which is a desire to give your loved ones the best gifts possible. Unfortunately, we tend to associate value with price and, as a result, spend much more than we can afford. Retailers understand how to trigger your emotional buttons, encouraging you to spend more, rather than less. So in spite of all the hubbub, it’s paramount to protect yourself and carefully watch how much you spend this season.

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4 Strategies to Maximize Retirement Income

This article first appeared in Forbes.com on November 28, 2013.

Retirement Fund 3More than seven out of 10 Americans worry about outliving their income during retirement, according to a recent survey by Prudential PUK +1.57% Retirement. Decades of pension plan conversions to profit-sharing plans, combined with a stock market decline of more than 50% in 2008 and falling real estate values have devastated savings and retirement accounts nationwide. As a result, a combination of post-retirement work, Social Security benefits, and prudent portfolio management is going to be necessary for most baby boomers to retire during the next two decades. Implementing the following steps can help you maximize your post-retirement income so that you remain financially independent during your golden years.

1. Continue to Work

According to a recent Gallup Poll, almost three-quarters of U.S. workers intend to work past retirement age, 40% by choice and 35% due to necessity. Delaying retirement as long as possible makes economic and psychological sense due to the following reasons:

  • Increased Financial Security During Retirement. The last years of work are typically the highest income-earning years of employment. At the same time, most of life’s major expenses – buying a house, educating children, acquiring significant assets – are over, so that a greater proportion of income can be devoted to savings.
  • Improved Mental and Physical Health. According to Carol Dufouil, at a recent presentation at the Alzheimer’s Association International Conference, the risk of getting dementia drops by 3.2% for every year worked past retirement age. Study after study indicates that people who continue to work live longer and are in better health than those who retire at age 65 or earlier, and the benefits are present for those who worked full-time or part-time.

Unless your job is too physically demanding or stressful, seek to extend your employment, either full-time or part-time, as long as possible.

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What Men & Women shoppers Can Learn From Each Other

men vs womenJohn Gray’s 1992 book Men Are From Mars, Women Are From Venus confirmed what men and women have always known: The two sexes differ in their perspectives, motives, rationales, and actions. Even though the reason for the differences (nature or nurture) continues to be debated, study after study reflects similar results, and sophisticated companies have adapted their customer outreach programs to account for these differences. Everything from advertising style, message, and media, to product design, store layout, sales training, and customer service policies are designed to appeal specifically to both sexes.

The goal of every retailer is to:

  • Lure shoppers
  • Make them stay in the store longer
  • Influence their buying decisions
  • Turn them into return customers

Failure to address the idiosyncrasies of gender can have real financial consequence for retailers. In a New York Times article published on February 16, 2012, Eric Siegel, a consultant and chairman of the Predictive Analytics World conference, stated, “We’re living through a golden age of behavioral research. It’s amazing how much we can figure out about how people think now.”
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