20-video series #10: Understand compounding your wealth through full cycles, and use it for the longest time possible
Dec 26, 2022
Welcome to my new 20-video series, on the 20 Next Level Wealth steps to designing and then living your dream life.
The dramatic landscape changes over the past few years have created a unique opportunity for you to design and live your dream lifestyle.
In this 20-video series, which I filmed while travelling around Europe, I've aimed to articulate everything important that I've learned about personal finance, business, wealth, and designing an ideal lifestyle...into just 20 short blog posts!
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The 8th wonder
We’ve probably all heard the saying that compound growth is the 8th wonder of the world.
He who understands it, earns it, and he who doesn’t, pays it…as the saying goes.
But since we’ve all heard the saying, why doesn’t everyone benefit from compound growth to the maximum effect?
I think it’s partly because the result from compound growth aren’t intuitive.
We expect the results to be strong in the early years, but the real magic happens the longer you allow compound growth to flourish…and how!
Multiplying your wealth
I remember at junior school with my first Casio calculator – in the days before i-Phones or home computers! – playing a silly game where I just added 2 + 2 as many times as I could for long periods of time.
2, 4, 6, 8, 10, 12, 14, 16, 18, 20, 22, 24, 26, 28…the numbers increased slowly.
But if you multiplied 2 by itself the numbers very quickly became so large that the calculator couldn’t cope.
2, 4, 8, 16, 32, 62, 128, 256, 512, 1024, 2048, 4,096, 8192, 16,384, 32,768, 65,536, 131,072, 262,144, 524,288, 1,048,576…
Investing for consistent returns each year works a bit like this.
As your wealth grows, so too does the wealth you create.
But to get the amazing results, you need to allow time to keep doing its thing.
Making money while you sleep
Warren Buffett once said that you need to learn to earn money while you sleep, or you will work until you die.
And indeed Uncle Warren is perhaps one of the greatest examples of the power of compounding in action.
Buffett has a net worth of USD $106 billion at the time of writing, though it will most probably be more by the time you read this!
The really interesting thing is that his net worth at the traditional retirement age of 65 was ‘only’ around $12 billion.
Read that again.
And yet look at how much his wealth has snowballed since that time.
Nobody disputes his investing genius, increasing Berkshire’s per share book value by around 20 per cent per annum for decades on end.
Perhaps he is the greatest investor that most people will ever see!
Yet one of his greatest investment ‘secrets’ has actually been to allow compound growth to continue working its magic uninterrupted for 8 decades.
And look at the results!
Well over 99% of Buffett's wealth has been created after the age of 53, when his net worth was around $620 million.
The lesson here is that the most spectacular results rarely come from one-off windfalls or get-rich-quick style investments.
Instead they very often come from achieving solid returns for the longest possible period of time.
Never interrupt compounding unnecessarily.
I discussed this further in the short video below.
Tune in here.
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Whenever you’re ready…here are 4 ways I can help you manage your own money and go next level wealth:
- Boom or Bust in 2023 – 20 minute online workshop for investors
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