- The Finance Gourmet

Power of Compound Interest – A Case Study

January 23, 2023August 17, 2022 by Finance Gourmet

Over at MarketWatch recently, was an interesting article entitled Make Your Kid Rich for $1 a Day. I’ll let you go over there and read the particulars if you are interested. However, I think that the concept provides a great way to study the phenomenon of compound interest, and the elements that go into it. Compound Interest Only Works Over Long Periods People love to quote Albert Einstein saying that the most powerful force in the universe is compound interest. What most people forget is, that as a physicist, Mr. Einstein was used to working on a very large scale, with a very long timeframe. Let’s start at the beginning. Compound interest is not magical. It is merely the phenomenon of earning interest on your previously earned interest. So, if you invest $10,000 and earn 10 percent interest annually, then you would earn $1,000 in interest, and have $11,000 at the end of the year. (Sort of, depending on how interest is paid and compounded, but let’s not quibble.) The following year, you would also earn the same 10 percent interest. However, this time, you earn 10 percent on $11,000, not just the original $10,000. In other words, you are …

What Is The Difference Between UTMA and UGMA?

November 20, 2020May 13, 2020 by Finance Gourmet

How Are UTMA and UGMA Alike? UTMA and UGMA are very similar. Both are uniform code proposals adopted by the individual states. Like other uniform codes (the uniform building code is a common one, for example) these work by proposing a common framework for states to use in order to prevent a hard to use patchwork of laws in each state. The uniform code did not prevent one important variation. The UTMA or UGMA account comes under the control of the beneficiary when he reaches the age of maturity. However, that age varies from state to state. Typically, the beneficiary assumes control of the UGMA or UTMA at age 18 or 21. The UTMA and UGMA are two different uniform codes, but they are more alike than they are different. What Is UTMA? UTMA is the Uniform Transfer to Minors Act. People say, “ut-mah” when they talk about them. What Is UGMA? UGMA is the Uniform Gifts to Minors Act. People say “ug-mah” when they talk about these. Both UTMA and UGMA were created to allow adults, usually parents, to transfer assets to minors without the need to establish a special trust to enable such ownership. Both UTMA and UGMA …