WISE WORDS THAT BEAR REPEATING

WISE WORDS THAT BEAR REPEATING

Today’s Post comes by way of John Mauldin’s Newsletters, Thoughts from the Frontline. This newsletter has from pearls from market genius Richard Russell who pens the Dow Theory newsletter.

Mr. Russell (if the Author uses the prefix “Mr.”, it demonstrates huge respect or sneering contempt, but the reader can guess from the context which is extant) has been an investor and market guide since the 1940s.


Compound and Grow Rich

As one ages, one’s problems often compound. But that’s your business.

And as one’s savings age, the savings compound. That’s good business.

Many have seen the Investor One and Investor Two compounding examples. Shoot, let’s give the investors names, make it a little more reader friendly. Investor A is named Nanook. Investor B is named Eustace[i]. The Author searched assiduously for names that would be more difficult to remember that “One” or “Two”.

In the typical example, Nanook opens an IRA at age 19 and contributes $2,000 per year for seven years. Then he stops saving and spends his money on wine, women and song. In all, Nanook invests $14,000.

Eustace, by contrast, spends his formative years, 19 through 25 on wine, women and song, and age at which, Eustace probably does not know, that your spending on wine, women and song, is usually less effective than at a later date. But the Author digresses…

Eustace is able to learn, however, and begins putting $2,000 per year into an IRA at 26. Eustace’s broker tells him that if he wishes to save close to one million for retirement, he must put $2,000 per year in until he is 65. And he does.

So fast forward to age 65. Nanook has over $930,000 from his $14,000 investment. Eustace has over $973,000 from his $80,000 investment.

A HARD LESSON, BUT A LESSON NONETHELESS FROM THE ANNALS OF THE DESERT OF THE REAL!

[i]The Author searched assiduously for names that would be more difficult to remember that “One” or “Two”.