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PaperclipPerfector  1yr ago (text post)   4441 thread views

Small-Scale Question Sunday for November 5, 2023

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

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I'm not sure. Why did @ulyssessword bring up net present value into a conversation to contradict @f3zinker talking about the future value of what $10M would be worth in 7 years?

My interpretation of @ulyssessword is that we can either reject or assume @f3zinker was being hyperbolic when he said:

Doesn't know the value of 10M USD with 7 years of compounding.

Because the value of 10M USD today, that we can access in 7 years, with 7 years of compounding (in a reasonable asset selection, etc.), is 10M today. It's tautological. There's no calculation involved. It's the same as saying "Doesn't know the value of 10M USD."

A slightly uncharitable interpretation is @f3zinker was taking a cheap shot that people are too stupid to understand compounding, and @ulyssessword was taking a cheap shot that the person complaining about people being too stupid to understand compounding doesn't even understand the time value of money.

The investing aspect of the original scenario was irrelevant to the value of the initial compensation, but presumably the hold and investment was meant to work around the fact that the person in the original scenario might not have the cognitive skills, knowledge, or life experience (yet?) to manage a nest-egg of that size wisely. I suppose some would argue that most people don't have those skills and thus this things like separate retirement accounts, trust funds, pensions, social welfare programs, etc.

Edit: To further clarify, I do actually think it's confusing because people in the investing world almost exclusively talk about present value when they say "value" unless future value is specified. In every-day usage people can be very slopy about the difference, and it doesn't help that things like the lottery jackpot are quoted in pre-tax future value terms. I'm also not making the claim that the uncharitable interpretation is what either poster actual intended, I'm trying to explain why there would even be a back and forth on the topic.

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