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.
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