Zaphod for President

Consider the following:

You are buying your first home. In addition to closing costs, down payments, appraisals, inspections, title fees, and the dozens of other fees you will pay, you have an extra $1,000 put aside. Why? Because you are smarter than the average bear.

Being the crafty consumer you are, you find the lowest rate possible, and secure that rate over a full 30-year mortgage (no ARMs for you!). You then stick $1,000 into an index fund that returns 26% per year APY.

Over the next 30 years you live life. You enjoy your home. You make payments every month. Then, one day, after 30 years of toil and sweat, you reach a glorious finale: your last mortgage payment. This is quite an achievement, and you deserve a reward. Return to your index fund, withdrawl the full value ($1,025,926.75) and begin enjoyng life as a millionaire.

The future value of an investment. Learn it. Live it. Love it.

FUTURE VALUE = PRESENT VALUE (RATE OF RETURN)^YEARS

In our example, 30 years go by at a rate of 26% per year, starting from $1,000.

X = $1000(1.26)^30

Remember PEMDAS; start with the exponent (1.26 to the 30th power).

1.26^30 = 1,025.93

For those who can’t remember what an exponent is, try this:

1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 * 1.26 = 1,025.93

Now, we multiply this by our initial investment ($1,000).

1,025.93 * 1,000 = $1,025,926.75

Finally, we take our money to a sunny little paradise and snort cocaine off of the chest of prostitutes until our fragile hearts explode.

Bonus question: if you are too lazy to Google “index funds”, and stick the $1,000 into an HSBC account earning 5.05% instead, how much do you have once your mortgage is repaid?

The answer: $4,384.11- enough for a weekend in Vegas, assuming you like slot machines (most old people do).

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