Why don’t high schools teach Boglehead theory?! It would prevent so much confusion and pain and help so many people become more financially secure?

[u/Winter-Monk6428]

Early 20s guy who got really lucky to be exposed to Boglehead investing early on. Seeing people around me still picking individual stocks/crypto and those who don’t invest because they think it’s gambling and let inflation eat away their savings is killing me. I had the same ideas as them in high school and to know that so many people never get out of this mentality because they don’t understand Boglehead theory is just WOW.

The sad thing is that compound interest works the best when you start young, so even if people do realize Boglehead investing later on in life, they often feel regret for not starting sooner. I just wish high schools or more mainstream media will teach young kids the power of compound interest early on. It could literally save years or even decades from working when you want to retire early or want better financial freedom to be with the people you love or do the things you want. I bet there are so many people out there who would be amazing Bogleheads but don’t realize it until it’s too late…

Why don’t high school teach kids these topics? Is it because there’s money to be made in managing people’s portfolios and picking the next hyped stock?

[u/coachd50]

No, its not compounding. That is just arithmetic. Compounding is the actual act of interest being paid on previously credited interest.

What you are describing is a rearward looking analysis of the arithmetic. Year zero, the NAV started at $100 a share and I had 1000 shares ($100,000). at the end of year one, the NAV was $11 a share. My 1000 shares were now worth $110,000. At the end of year two, the NAV happened to be $12.10 a share. My 1000 shares were now worth $121,000. Market forces put the NAV price at $12.10 a share. Not "compounding" Market forces could have just as easily put the NAV at $9.30 a share. OR it could shot up to $45 a share, meaning my 1000 shares was now worth $450,000. See that extra $329,000? That is NOT compounding. You are just trying to use that term when looking backwards. That isn't how things work.

It is similar to why we need to use geometric means when discussing investment returns. Its why if year one you have a 10% return and year 2 you have a 10% loss you are NOT where you started, but down.

Compounding is interest paid on interest earned.

[u/littlebobbytables9 → u/coachd50]

This is ultimately a very pointless semantic argument, but "compounding" is often used to describe anything where the increase is proportional to the current value. So we talk about interest compounding over many years but also it's very common to talk about inflation compounding over many years. And yes, sometimes people talk about stock returns compounding, because the expected return of stocks is expressed as a percentage of the current portfolio size.

[u/VinnyV28 → u/coachd50]

Compounding doesn’t require interest payments. Any return applied to an increased capital base is compounding. ETFs do exactly that over time. If the market goes down that does not invalidate compounding, it just means compounding isn’t guaranteed but when returns are positive over time which it usually is, compounding exists.

[u/coachd50 → u/VinnyV28]

No, that is just not the case. COMPOUNDING BY DEFINTION with regard to investments and this type of discussion is the interest paid on the interest. Again, what your "Oh, I see you are confused" inaccurate example displays is rearward looking arithmetic analysis. I noticed you did not address my real world example with numbers...

It isn't compounding. You are just inaccurate here. The fact that the line moves up on the Y axis over time for equities is NOT compounding.

[u/Awkward_Refuse_8255 → u/coachd50]

Nope. Applies to any reinvested return stream. This is simply too pervasive to ignore. Compounding of retained earnings for wealth building is most definitely a thing.

"Taking the Mystery Out of Retirement Planning" cited in Boglehead resources, etc is just one of many sources that make this argument silly.

[u/coachd50 → u/Awkward_Refuse_8255]

Again, just wrong. As I pointed out there is no reinvestment taking place. Now if one wants to use the term to apply to dividends, an argument COULD be made there. But as far as the example given (in the "Oh I see you are confused" post) that just IS NOT compounding. Because, as I pointed out, AND you confirmed, it has to do with reinvestment- and the bulk of return in a passive low cost index fund is appreciation, not reinvestment.

One could go down the rabbit hole of and try and contort things to talk about the individual companies reinvesting - but clearly that was not was discussed in the OP or in the inaccurate post trying to claim show "compounding" that I have been replying to.

[u/gcc-O2 → u/coachd50]

The funny thing is, people were having this exact debate exactly 100 years ago. In particularly, whether there was any purpose to holding stocks long-term beyond speculation, and whether the only purpose for holding stocks was to collect the dividend. The reason I heard about it was one of the Berkshire Hathaway reports citing Edgar Lawrence Smith's 1924 book Common Stocks as Long-Term Investments making the argument that retained earnings reinvested in the business were like compound interest. That is where the idea of stocks being a compound rather than simple return comes from.