On June 6th 1678, Zipporah Bolles was murdered by a deranged sixteen-year-old boy. The boy was upset because Zipporah had refused him lodging. In his confession he said that he snuck into the house with an axe and struck Zipporah on the head as she sat on a stool holding her baby. He then proceeded to kill her two older children, but for some reason, he stood over the baby boy laying on the floor next to his dead mother and decided not to kill him also.
The baby was John Bolles, and I bring it up because I am in his direct line of descent. Claire, my niece and our family’s resident historian, wrote that reading the account of this tragedy “…really drove home for me the fragility of life and how a turn of events, now or hundreds or thousands of years ago, can change who walks the earth today, and who never did. Amazing.”
Personal growth consultant, Dr. Ali Binazir, said it is so amazing that it is a miracle. He calculated the probability of you being born as “…the probability of 2.5 million people getting together… each to play a game of dice with a trillion-sided dice. They each roll the dice – and they all come up with the exact same number.” And since his definition of a miracle “…is an event so unlikely as to be almost impossible,” we are all miracles.
Compound growth has also been called a miracle because, given enough time, a small amount of money can grow into unbelievable wealth. Albert Einstein was purported to have said that compound interest was mankind’s greatest invention, describing it as “…the 8th Wonder of the World.” The chance that he actually said that is probably only slightly higher than the probability of my birth, but it makes a great story. However, there is no question that Benjamin Franklin said, “Money makes money. And the money that makes money, makes money,” which I think is a brilliantly simple and clear definition of compound growth. In other words, compound growth is the growth of both the earnings of an investment’s initial principal and its reinvested earnings.
Unfortunately, for most young people their initial principal is zero. So, savings is required to create principal for compounding. The numbers suggest that starting at age 25 a young person should save 20% of their income every year until retirement. But even if they do, the reality is that for the first 20 years the majority of growth comes from the new savings because there is not much principal to compound. It’s not until age 50 that even the best savers have accumulated a substantial enough principal base for compound growth to really have an effect. The result, according to retirement expert Michael Kitces, is that most people are far too reliant “…on the biggest part of the compounding curve to hit exactly when they need it -- if they don’t get that last doubling… in the final 9 years, their retirement plan can be dramatically off track. In response, that means clients… need to acknowledge how remarkably uncertain their actual retirement date will be when committing to a savings/accumulation plan…”
The fragility of financial markets is like the fragility of life in that a turn of events at an inopportune time can significantly undermine our financial plans. But, unlike the timing of our birth, the success of our financial plans is not totally out of our control. And that’s because, according to Gandalf in The Fellowship of the Rings, we all get to decide “…what to do with the time that is given us.” So, live modestly, save regularly, invest prudently, and if things don’t work out as planned – work a little longer. Remember, life doesn’t always follow our plans, but it’s always a miracle.