The Amateur Financier

(As part of my attempts to ‘loosen up’ while blogging, I’ve decided to make my posts on Wednesdays into more humorous affairs.  It’ll be the perfect way to get over the hump while still learning a thing or two about money and personal finance.  Have fun while we discuss a perfectly legitimate (if rather far fetched) way to make a huge personal fortune.)

Let’s say you have a time machine.  No, don’t ask where you got it; that’ll just spoil all the fun.  How about we say that you got it at the local Doc Brown’s Time Machine and Mr. Fusion Emporium?  (Editor’s Note: I’m the first in line for a franchise when they start to expand.)

Once you’ve finished warning your past self of all the mistakes that you’ve made and how to avoid them, you’re both delighted and surprised to discover that you haven’t faded away after altering the flow of time.  (Or maybe your past self just didn’t listen; make a mental note to find a time when you weren’t out partying during which to pass on vital future information.)  You still have one trip left on the time machine before you have to return it, though, so what should you do now?

"Hi, I'm Marty McFly, and I'll be your chauffer for the evening." (c) Universal Picture

That’s when you have a brilliant plan; take advantage of compound interest to make yourself a billionaire in the future!  Yes, all you need to do is put aside a small amount of money now, allow it to grow for a few centuries, and you’ll be rich beyond your wildest dreams.  It’s the same principle of compound interest that inspires financial advisers to tell you to start investing early, but rather than waiting a few decades (and working the whole time to keep saving), you’ll simply skip ahead a few centuries and live like a king!  You’re not the first person to have this idea; it’s a concept known as the

Compound Interest Time Travel Gambit

and it’s been used in everything from Futurama to “The Restaurant at the End of the Universe”.  If time makes your investments grow, than more time must make them grow even further, and centuries would allow you to become obscenely wealthy in the future with only a tiny amount of money invested now.

You make up your mind, pull all the money you have left after your time travel rental out of the bank (a full $1000) and after a little bit of research at the time travel office, invest it in a fund that looks to have good prospects over the next two centuries.  You hop in the time machine, set the chronometer for 200 years in the future, and the gun the gas to get up to 88 miles per hour…

BAM!  You’re on a road that hasn’t been used in over a century, since cars no longer need to drive on the ground.  You head over to your brokerage, to learn how your fund did.  Your broker pulls out your files (blowing the dust off them in a comical fashion), and with a little bit of checking on her computer, tells you that your balance is currently over four billion (yes, billion with a B) dollars.  (It’d be around $4,838,949,585 if compounded at 8% for 200 years, for those who like exact numbers.)

After you recover from your fainting spell, you tell your broker to cash some of the fund out, so you have some spending cash to enjoy this strange new world.  You remember that inflation has been active the years you’ve been gone; at an average rate of 3.5%, it’s going to take $1000 to have the same spending power as one dollar when you left.  So, with one thousand dollars being the new single, you decide to take out a healthy amount to ensure you have enough; “Give me one million dollars” you ask, smiling broadly as you do so.

Your broker raises an eyebrow, selling off a portion of your investment, and handing you a single bill (one with a picture of Ronald Wilson Reagan on the front, you note with a bit of nostalgia).  You’re a bit surprised, but when you see the ‘$1,000,000, Legal US Tender’ written on the back, you decide the government must have started issuing much higher denomination bills rather than revalue the currency.

“Don’t spend it all in one place,” your broker calls after you, a rather weird thing to say.  You see a nearby coffeehouse, and decide to have a quick drink.  You order your standard double foam, extra tall, mocha chocolate vanilla low-caffeine chive tea, and watch as the cashier rings it up.

“That’ll be five Reagans,” she says, waiting patiently for you to pay.  You hand her the bill, waiting for your change.  She sighs, “That’s one; four more, buddy.”

You stare at her a few moments before the truth dawns on you; inflation has taken more of a toll on the value of your money than you thought.  Whether because a few jags of hyperinflation during the time you were gone or because of a trend of long-term higher inflation, prices didn’t increase 1000-fold; no, the world experienced 1,000,000 fold price increases, a process known in books and movies as

Ridiculous Future Inflation

As Lazarus Long, one of Robert Heinlein’s characters put it, “$100, put at 7 percent interest compounded quarterly for 200 years, will increase to $100,000,000 – by which time it will be worthless.”  (“Back to the Future” had an example that was even closer to home, predicting a Pepsi would cost $50 in 2015; if that comes to pass, I’ll be the first to admit that Obamanomics failed spectacularly.)  Cursing your lack of foresight (as well as wishing that you read/watched more science fiction before you went on your time travel jaunt), you head back towards your time machine, trying to think of how you can invest your money to become wealthy in the present (well, your present, which is currently the past…you know what, describing past, present and future when it comes to time travel gives me a headache).  But alas, your time machine is being towed; curses on repo men who can track you anywhere in the time!

Will you ever be able to get back to your own time?  How many Reagans will it take to rent a hotel room while you sort things out?  Will the Amateur Financier actually finish this story next week?  (Answer: Maybe)  Stay tuned for the next exciting chapter of Wacky Wednesday!

• How To Find The Best Savings Account Rates Online
• My Debt Snow Ball
• Sharing My Goals (Part II)
• First Retire, Then Have Kids
• Using a Roth IRA Withdrawal to Purchase First Home