My motivation and mission:
Google sheet that contains list of all WCD lessons and links to all content:
Lesson reviewing how to use Google sheet:
Here are three simple ways to increase your wealth:
Save more
Invest more
Live longer???
I’m sure you understand items 1 and 2. They make sense and you have likely heard them before, but item 3 is more important and commonly overlooked.
What exactly do I mean when I say living longer will make you wealthier…? A more explicit way of rephrasing item number 3 is:
The simplest way to grow your wealth is to compound it for a longer period of time.
Warren Buffett started investing at the age of 11 years old. In 2021 he is 90; that is 79 years of compounding! I would argue that Buffett’s #1 key to his success and having a net worth of roughly $100 billion is that he has been consistently compounding his wealth for an incredibly long period of time (with minimal interruptions…and at a good ROI).
In the long run…
Your net worth will depend highly on:
The number of years you have continuously compounded your wealth.
The rate of return of you investments (ROI).
And will have little to do with:
How much capital you started with.
The amount of capital you start with means a lot in the short-term, but over long periods of time, the more important factors to focus on are ROI and not interrupting the compounding.
Example 1
$1,000 could turn into $82.8 Billion if invested at 20% year over year for 100 years…
(Don’t get your hopes up… you probably aren’t going to do that)
However, the point is that $1,000 can grow into an enormous amounts of wealth if compounded long enough. You don’t need a lot of money to start with, you just need to continuously compound for a very long period of time.
Example 2
…. This example is a bit more realistic….
If you can compound for as long as Warren Buffet did (roughly 80 years) at an ROI of 10% per year, you could turn $1,000 into over $2 million!
The Rule of 72
Notice that the 10-year return in the last four columns in the examples above is the same every decade. If you fix the ROI as a constant, the rate at which your money grows stays the same.
There is a simple rule-of-thumb for calculating how long it takes your money to double. It is called:
The Rule of 72 >> Years to Double = 72/ROI%
The Rule of 72 works by taking 72 and dividing it by the ROI% and the difference between them equals the number of years it takes to double your money.
For example, if your yearly rate of return is 7.2%, it will take roughly 10 years for you to double your money. If your rate of return is 10%, it will take you roughly 7.2 years to double your money.
Obviously, this is a rule-of-thumb and isn’t exact. The more extreme the numbers (e.g. a rate of return of 100%) will not be very accurate.
How Does All of This Factor Into Health?
Well, if I use the rule of 72, and I assume I’m invested in something like the S&P 500, I can pretty safely assume that my nominal net worth will double every 7-10 years.
If you can extend your life (assuming you are healthy and not in hospitals) by just 10 years, you can 2x to 3x your portfolio.
If you can extend your life by 20 years, you can 4x to 8x your portfolio.
I’m sure someone is saying to themselves right now, “I don’t want to WORK for another 10 to 20 years. I want to retire early!” You still can! I’m not advocating for working until you die; quite the opposite.
If you save and invest early in life, you can put away a nest egg that you never have to touch! You can keep letting it compound for decades and if you live longer, then it will grow larger.
Remember that time is in the exponent… this makes it a very powerful variable. People overlook this variable, or get too impatient, or die too early to take advantage of the time variable… don’t be these people.
Stay healthy, invest early, live a long life, become wealthy.
Summary
The key to growing wealth is compounding your money over a long period of time. A fundamental pre-requisite for doing this is good health and living a long life.
Living a healthy life has numerous other benefits and should be one (if not your #1) priority in your life.
In other lessons, I will make the argument for why your health should be your #1 priority life… but for this Lesson, I’ll end with the Vulcan Salute:
Reference Material & Social Media
In Lesson 030 I cover how to navigate and utilize the Google Sheet I have built for all WCD lessons. This Google Sheet contains a worksheet for each WCD lesson. Each sheet has all of the Excel calculations, tables, graphs, and charts that I have posted in the respective WCD lesson. Additionally, the Google Sheet has a master “Index” worksheet that has links to all of the content associated with each lesson.
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