The Magic Wealth Ingredient

There is a legend about a successful financial advisor in Warren Buffett’s stomping grounds of Omaha, Nebraska. It is reported that this advisor has learned the art of communicating the basics of wealth building with the local farmers. The advisor, who we will call Fred Smith, greets clients in his office with a window behind his desk that overlooks fields of blowing wheat and corn.

Many clients look at him skeptically when he explains the simple power of investing for the long-term and multiplying their savings into large amounts of money from their modest savings. They often blink at him with glazed over eyes and asked: ‘How can this be?’

To demonstrate his point about the magic of compound growth by owning a share of the growing profits over time of a group of world class equities, Fred leans across his desk and picks up a glass vial.

He points to the seeds of wheat inside it and states, “If I show this vial to a resident of a city such as New York or any major urban center, and say to them, with these few seeds, I can populate many acres of land to grow vast amounts of wheat to feed entire cities, what do you think they would say to me?”

They would likely stare at Mr. Smith in disbelief. Yet that is exactly what he is suggesting can happen to their modest savings if they have the patience to focus on the long-term. This is the same patience that couples bring to their successful farming business with the ability to handle adverse weather conditions, volatile grain prices, long days of hard work, pestilence, government regulations and crop failures amongst other challenges on their path to successful crop growth.

The magic ingredient to their success is the power of compound growth on savings. For example, a dollar invested for 20 years at 8% grows to $4.66 and if left to compound for another ten years for a total of 30 years it more than doubles again to $10.06. While the return matters, the most important factor is the number of doublings that occur in one’s lifetime.

It is TIME in the stock market that counts NOT MARKET TIMING!

Several books and consumer finance personalities use the following example: If you were offered $1 million dollars right now or the option of taking an American penny (recognizing that Canada no longer has a penny) that is doubled in value every day for 30 days, which offer would you take? The answer is to take the penny! Do the math yourself and see what happens.

The other key ingredient is time to allow compound growth to work its magic. And it is never too late to put compound growth to work for you. Whether you are in your early 20’s or even in your late 50’s time and compound growth on your savings can work for you. Many people now live into their late 80’s and 90’s so even someone who is just retiring can look forward to another thirty years or so as their investment time horizon.

There is an old Japanese Proverb. It says that the best time to plant a tree was twenty (20) years ago. The second-best time to plant that three is TODAY!

Call today to set up an appointment to review your goals and objectives to ensure that your current investment approach will fulfill your goals.

We will look at your sources of income, the physical assets you have, such as home, other real estate, etc. We will also review the various investments that you have that will be generating retirement income, now and into the future.

Also, visit my business website (myfinancialsolutions.ca) for additional financial information on insurance, retirement/estate planning, investments and whole host of other financial topics.

Robert Hughes,
P. Eng., CFSB, CFP, CPCA