My son has started to show an interest in investments. Some of his friends are trading EFTs, crypto currencies and NFTs. Their exciting stories of successful trades are attractive to him.
I told him of another way. Compounding. It’s slow and the antithesis of excitement but Einstein called it the eighth wonder of the world. Compounding is why most of our clients retire successfully. Compounding is also Warren Buffet’s secret.
The slow and steady growth of interest on interest and gains on gains become exponential over time. The secret ingredients of compounding are the small and steady inputs and the magic of the long term.
Compounding also works in all areas of life. It is, for example, the small regular habits that contribute to wellbeing in the long term. A daily gratitude practice that helps alleviate depression. The regular family dinner around a table which fosters close family relationships. Exercise a few times a week to prevent heart disease and brain deterioration. A monthly book club meeting over years that wards off loneliness.
Compounding may seem boring to a 16-year-old and perhaps to you, but in the long term it is the cleverest thing to do. The little effort to set up the debit order, the discipline to gather the family or put your shoes out for your morning run is rewarded with magical multiplication over time.
The return on effort far outstrips more alluring, seemingly easier and exciting endeavours.
Compounding is an essential belief for a good life.
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//08 April 2022.