THE MIRACLE OF CAPITALISM

Right now, as an individual, how can you take part in this miracle? One way is by becoming a (little) capitalist yourself. This means saving money and investing . Here are some examples of investments:

• Savings accounts in banks: not much interest is earned but your savings are very safe and available whenever you need cash
• Money market accounts: not quite as safe as bank accounts, but still very safe. Your money earns more interest than with bank accounts, but the rate is still pretty low. The money is available when you need it.
• U.S. Savings Bonds: these are much like the first two suggestions, but are intended to be held for 5 or 6 years (although you can cash them at any time). The interest rates are better than the first two.
• Longer-term U.S. government bonds: 6 months, 12 months, 5 years, 10 years, 30 years, etc. These may be difficult to buy directly (they require larger sums of money), but can be bought indirectly by purchasing shares in a mutual fund that invests in these types of bonds. There are many such mutual funds; check out the Vanguard bond funds, for example. The mutual funds may require an initial investment of a few thousand dollars. These pay better rates of interest than the first two suggestions above, and are just as safe IF YOU HOLD THE BONDS TO THE END OF THEIR DUE DATE (when you get your investment back). If you buy a 5 year bond and have to redeem it early, you may get more or less than your initial investment depending on how interest rates have changed since you purchased the bond. The bond mutual funds have to deal with this "early redemption" aspect all the time, as customers buy and sell shares in the mutual fund.
• Non-U.S. government bonds: foreign governments, state governments, etc. Some are very safe, some are incredily risky. State bonds have tax advantages.
• Private bonds (from corporations): a range of risk; generally, the higher the risk, the more interest you earn for taking on that risk.
• Stocks: shares in a corporation. The corporation may, or may not, pay dividends (which is similar in tax effects to interest on a corporate bond). Generally, most money is won or lost on the change in the price of the stock. Over long periods of time, investments in stocks provide the highest return. Over short times, you can lose badly. Definitely, for people with guts and the people willing to stay in there through thick and thin. 
• Real estate: With so many people all over the whole world becoming richer over time, but with the size of the earth not changing appreciably, land and real estate will participate in the miracle of capitalism by becoming more valuable. However, location is everything and your river-front house which has just been flooded won't be worth much unless some government takes pity on you.

The table below shows the rewards for patient investing. It shows what, at various interest rates, investing one dollar per month will produce starting at three ages (25, 35, 45) and ending at age 70. The table assumes that the annual (nominal) interest rate is I and that interest is compounded monthly; the formula for the total savings (with interest) is

N is the number of months; x=(1+I)/12; total savings = x*(1-x^N)/(1-x)