Compound Interest, Manhattan & the Indians

I’ve always enjoyed a story that I have often told about the power of compound interest and the Indians who sold Manhattan. I even wrote an article about the power of compound interest a couple of years back using the example I had found in an old shoe manual:

Inspiration is often found in the most unlikely places. I received my first lesson in the importance of compound interest and long term savings from a pair of training shoes I bought in high school. To emphasize the point that training a little bit every day could create vast improvements over time, the training manual used an example of the Native American Indians and pilgrims in the US.

In the early 1600s, the American Indians

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19 Responses to Compound Interest, Manhattan & the Indians

  1. MyFinancialGoals says:

    Excellent Article. I was going to use the Indians and Manhattan story for an article in one my blogs, but I couldn’t do justice to what you have just done. Instead I’ll just encourage my readers to come over here for the lesson.

    Great Job!!

  2. Wow, very interesting article. I’ve never heard this one before. Thanks!

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  5. Geomatryx says:

    I love these calculations !! Entertaining and Informative.

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  7. nobody says:

    Nice article, its amazing how the money adds up!

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  11. chmersch says:

    If you are using todays dollars to determine the value of the trinkets ($9 an ounce times the number ounces of silver gets you the $162) you would then have to discount that back to 1626. Or you could just keep it in at the current date and they Native Americans got $162 for Manhattan.

  12. Brad says:

    I’m amazed that no one has cited a most obvious fact. The trinkets that bought Manhattan would be priceless today as artifacts! If the indians had saved them, they could have sold them now to museums and wealthy investors for whatever price they claimed, or just charged admission to their own museum. The value of the trinkets would not be subject to the whims of (or existence of )the stock market.

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  15. Ryan Brigman says:

    Great article. I plan to use it as an illustration in my upcoming sermon on the Lord’ Prayer. Christians often pray for worthless trinkets instead of the coming of God’s kingdom. No matter how much intrest there is it cannot compare with the wealth of God’s kingdom.
    Thanks

  16. mickrussom says:

    “8% compounded annual interest”

    Only 1%-ers get this. Eight percent. HAHAHAHA. Pssbook, savings, checking, all under 1% now. CDs in the low 1% range. Its a JOKE. 8% is a dream.

    Real inflation is like 11% now, and all the non-gambling ways of saving money are less than 2%.

    So the indians would have to constantly gamble. And guess what? 1929, 1987 and 2008. From 8% to what, -50%

    This compounding is a crock. What if a dollar stayed a dollar. How about that? How about a penny saved is a penny earned?

  17. Matt K says:

    Is there a list of historic interest rates? Could this be re-calculated with the rates that someone might actually have seen investing between then and now? The calculations as they exist are fascinating especially the last one that shows how strongly the interest rate earned is such a big game changer.

    -matt

  18. George says:

    The exact numbers for interest compounded annually (Land Value:8,029,049,453,000 in 2014, purchased in 1626)

    For Trinket value: $1000 = 6.1%
    162 = 6.6%
    24 = 7.1%

    G.

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