Investments

According to a September 2012 article in The Wall Street Journal, the “common rule of thumb is that of 10 start-ups, only 3–4 fail completely.” The National Venture Capital Association believes 25–30% of venture-backed businesses fail. There are different definitions of “failure.”

As defined by the Federal Reserve Act of 1913, the mission of the Fed is to “maintain long-run growth of the monetary and credit commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.” In other words, the Fed needs to keep inflation low and ensure resources are used to their full capacity.

The total return earned on any investment during a year equals its income plus any price gains or minus any losses. For multiyear periods, the interest earned on the reinvested interest exerts a big overall influence. Bondholders who do not understand this may be doing worse than they think. The following example demonstrates the impact of compounding.