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Money Tips from Alice in Wonderland

Money Tips from Alice in Wonderland

Robin Applegarth | Divine Caroline

July 09, 2010

Does the world of investing seem like a mysterious place? You may feel like you’ve dropped down a rabbit hole into a strange land of creatures with names like TIGR, GNMA, and LURMS.

Lewis Carroll, the author of Alice’s Adventures in Wonderland, and Through the Looking Glass, was a mathematician and logician of the 1800s. His inventive tales are full of financial metaphors. Let’s tour Wonderland and see what its odd creatures can tell us.

At the beginning of the story, a white rabbit dashes in front of Alice. He’s carrying a watch and declaring “Oh my ears and whiskers, how late it’s getting.” Time and lateness is a theme that twists and bends through this fairy tale.

1. Keep time on your side. If you’re over age thiry and haven’t started saving for your future, you’re late too. The time value of money makes it much more efficient to save early.

Today’s Alice (we’ll call her Allison), will find that time can be a magic fairy dust for investors. How is this? If Allison starts saving $200 a month at age twenty-five, earns 8 percent a year compounded, and saves for thirty years (until she’s fifty-five), she’ll have $612,103 by the time she reaches age sixty-five. If she gets distracted by following muttering rabbits and doesn’t start until age thirty-five, she’ll only have $283,522, or $328,581 less.

No, this is not a hazy dream from a hookah-smoking caterpillar. She would have contributed exactly the same amount, but because she started ten years later, the earnings had less time to grow. This ability of money to mushroom over time is called “compounding.”

Whatever your age, if you can give savings twenty-plus years to grow, you’ll be a richer rabbit.

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