Personal finance with Ralph and Al: Compounding phenomenal for investors

  • Posted: Saturday, April 9, 2011 12:01 a.m.
    UPDATED: Wednesday, October 5, 2011 12:18 a.m.

By Emily Ford
College students should begin investing early, even a small amount of money each year, Catawba College students learned last week.
Take advantage of the power of compound interest, said Food Lion co-founder Ralph Ketner and retired Professor Al Carter.
ìCompounding is phenomenal,î said Carter, who teaches a basic financial class with Ketner.
Carter recommended the Roth IRA as the best investment vehicle for college students because withdrawals are tax-free. Although Roth IRA contributions are never tax-deductible, Carter said itís better than paying federal income tax on withdrawals from a traditional IRA.
Carter and Ketner also discussed dividends earned from common stock,.
When Ketner started Food Lion, then known as Food Town, the company did not pay dividends for 15 or 20 years, he said.
In 1957, $10 bought one share of Food Town stock, he said. Instead of paying a dividend, the company gave a stock split, he said.
For the first 10 years, that $10 investment was worth only about $6, Ketner said.
ìJust because a company doesnít pay dividends, doesnít mean itís a bad investment,î he said.
In 1967, the company had seven stores. Instead of paying investors a dividend, Food Lion used investorsí money to lease more stores, Ketner said.
By 1992, Food Lion had 1,012 and had made more millionaires out of its stockholders than any other business in North Carolina.
ìGrowth is the name of the game,î Carter said.
Compound interest can be a powerful force in both directions, Ketner warned students.
ìIt works the same when used on debt too,î he said. ìOn credit cards, it works in reverse.î
Contact reporter Emily Ford at 704-797-4264.

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