Is Investing Gambling? Not If You’re Doing This

Gambling vs Investing

When I revealed to my wife I was considering investing, her initial concern was that investing felt too close to gambling.

If you believe that the lottery is a tax for the stupid (a financial bracket my wife might put me in) then financial freedom isn’t about buying lottery tickets, but index funds.

This is because of what Einstein referred to as the eighth wonder of the world: compound interest.

One of my favourite illustrations of compound interest is the following question: if I offered you a £1,000,000 tomorrow, or a penny that doubles in value every day for 30 days, which would you choose?

If you’ve heard this example before, then you would know that a penny doubling every day for 30 consecutive days, leaves you with $5,368,709.12

Whilst this an extreme example (since your pot is growing 100% every day), the graph highlights the point that compound interest doesn’t seem all that magical…until you tip over a given time threshold.

Index Funds — What Are They?