Most powerful force in the universe

The Irrelevant Investor
1/18/2017

Buffett has been rich for­ev­er, but 95% of his net worth was earned after his 60th birth­day.

Read this arti­cle to under­stand the pow­er of com­pound­ing and why even long term thinkers can’t com­pre­hend how things will play out over the long arc of time.

Compounding plays an impor­tant fac­tor in the Elephant’s Paycheck Blueprint because we rein­vest div­i­dends and count on annu­al div­i­dend increas­es (which com­pound on each oth­er year-after-year). We’re com­pound­ing that div­i­dend return because we get div­i­dends from our div­i­dends, and over time, it real­ly adds up. Even after a “short time” like five years, you’ll see real­ly inter­est­ing num­bers if you look at com­pound div­i­dend growth from rein­vest­ing and annu­al div­i­dend increas­es.

It’s anec­do­tal, but after about 4 1/2 years the pay­check from the total­ly ran­dom sam­ple port­fo­lio I put togeth­er increased 75%, and has a pro­ject­ed raise of over 10% for the next year (con­ser­v­a­tive­ly). The anec­dote I like to tell… you prob­a­bly aren’t get­ting 10% a year (year after year) at your job. But your port­fo­lio can.

Part of the rea­son it’s hard to under­stand is that, as I write about it, I have to shift between absolute num­bers (a 10¢ increase) and rel­a­tive num­bers (a 10% increase) as I’m describ­ing dif­fer­ent aspects of what to expect. I don’t think peo­ple under­stand per­cent­ages very well. If I told you you had a $1 a year income from invest­ing, you’d roll your eyes. But, it’s impor­tant. If you had only invest­ed $50, that’s 20% — a fan­tas­tic income per­cent­age.

At a time when peo­ple want quick answers to things, but don’t want to stop and think about what they mean, it’s hard to get read­ers to spend the time to think about what this all means, and why it’s impor­tant. I had some­one inter­rupt me the oth­er day and say:

wow, you’re a real­ly long term thinker.

Yeah. And I hope some of that will rub off on you guys.