totally with you on teaching kids to earn their own spending even when the family can afford more. That habit builds a conservative muscle and keeps the third act from turning into a bonfire of cash, which is kind of the opposite of generational ADvice. Boring compounding beats flashy financial chaos every single time.
"Boring compounding beats flashy financial chaos every single time."
I'm afraid not. In order for that to be true the central bank would have had to get the interest rate so wrong that the national debt would go exponential.
yep, boring coMPounding in real businesses still tends to beat chaos across decades, even when rates swing.
Central banks can mess up, but unless we hit true debt spiral territory, saving steadily and and reinvesting usually wins for households.
are you saying policy shocks can wipe out long term returns for anyone staying unlevered?
No, it has nothing to do with policy shocks but the fundamental framework of how an economy works. It is functionally impossible for compounding interest to "beat chaos across the decades". If ever it did the state would be unable to repay its debt obligations causing state debt to go exponential. It is designed not to on purpose. That is the entire point of the central bank interest rate and why it is reassessed on a regular basis.
sounds like you’re equating compouding in productive businesses with interest on sovereign debt, but those are different engines. Central banks set policy rates to manage inflation and employment, not to cap long run equity cash flows and and reinvested dividends. Private returns can outpace noise for decades even while the state keeps debt stable when growth runs at or above funding costs. Are you saying a persistent equity risk premium cannot exist by design?
Yes that's exactly what I am doing as the interest rate set by the central bank directly affects the rates the banks set.
An equity risk premium relates to the risks of investing in the stock market compred to government bonds or the rates offered by the banks. ie. You are now presenting a case for why you should invest in stocks (equity) rather than simple compounding interest. https://www.investopedia.com/terms/e/equityriskpremium.asp