Blake Meyers: “I found your calculation of Bill Gates’ income since time began to be quite remarkable. [Click “Gates $$$ Clock” at left, and note that it was broken for a while because we forgot to account for the last split.] However, in discussing this with my officemate, we agreed that the real calculation should include compound interest. After all, Bill is savvy enough that he would put his money in an interest-bearing account, even if he was quite young when time began. Perhaps you could calculate how much he much he would have had to save each year, assuming a conservative rate of, say, 5%, to end up with the little pile of money that he has today?”
→ Good point. Though the investment choices billions of years ago — even 1,000 years ago — were quite limited. But the power of compounding never ceases to astound. (Me, anyway.) Do you know that if Bill had been born just 1,000 years ago, and if he had invested a mere one-billionth of one penny — not every year, just once — it would have grown by now, compounding at 5%, to $15 billion? Still not as much as he has today, but had he been able to bump the return up just a tiny bit, to 5.2%, he’d have over $100 billion.
This is why it pays to save when you’re young, even if you can’t count on living 1,000 years. (Neither, I think, should everyone NOT count on it — technology is racing along.) And it is also why the 20% and 30% annual returns people have come to expect from stocks . . . or in some cases 20% a month these days. . . are wholly aberrational and perhaps even a little worrisome. Five percent, let alone a mighty 5.2%, only seem low.
Quote of the Day
Markets are very good at what they do, in part because they harness greed and envy (in fact, all of the Seven Deadly Sins except sloth) and turn them into positive virtues.~Rocky Mountain Institute newsletter
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