A colleague shared this eye opening piece of work and in my quest to demystify investments I thought it was worth sharing. As a parent I relate and I hope you do too. Let’s rise up and raise trust fund babies, it doesn’t take the lotto to achieve such. All it takes is dedication, commitment and very small sacrifices. Peter Armitage cleverly educates us on the power of compound interest in a practical and realist manner. Enjoy the read and ACT on this!
I am sitting in the patio at Sabi River Bungalows watching you cycle around on the grass with the sun shining on your long blonde hair. You are an angel. You may only be seven, yet you probably teach (or remind) us more than we teach you. You know how to laugh loudly, show unbridled excitement and enthusiasm and to fill every hour with energy. The palette is so pure.
But my profession makes me worry about you. Maybe I read too much research, watch too much Bloomberg TV and do too many spreadsheets. You see, Sarah, the world is moving and developing so fast that it is a treacherous place in many ways.
Yesterday you screamed “I am scared” when I looked up after falling into the water on the last rapid and you went 50m by yourself in the little dingy, bouncing up and down while the Sabi River swirled around you. I could offer no help, but you made it by yourself to calmer waters – brave, seven and scared.
This is similar to the journey you will face over the next few decades as the world changes around you. I will try and be there to help, guide, cajole and suggest. But ultimately and eventually you are on your own.
Technology is moving so fast that I will eventually be unable to help, Chinese children are studying so hard they might take your job in the global marketplace. By the time you are 50 the world will be so different, in ways I cannot predict: Will electricity have run out? Will pollution rob you of fresh air to breath? Will you have the money to live the life I want you to have?
I am a geek Sarah, so I have just done a spreadsheet. I am smoking while writing you this letter and worked out that if I put my cigarette spend into a unit trust every month (R400), by the time you are 21 it will be worth R172,000. That could buy you your first car! So I should probably do that, it only seems fair to you – a healthier dad and your first set of wheels.
You see I think constantly about preparing you and providing for you and this is where I get a little confused. I work extremely hard, bashing away relentlessly on this laptop, often justifying it by the fact that I am “providing for your future”. But all you want right now is my time, not my money and I am seldom good at balancing [that].
So how do I balance preparing you for the future, providing for your future and giving you what you need right now? You need money right now, but you don’t realise that, you are far more interested in time and experience. It cost money to go river rafting yesterday, but for you it was the time and experience that was of value and that will steady you for the future; the money was just the enabler.
One of the things that I am obliged to do for you is to apply the economic principles that are integral to what I do every day – help people maintain and grow wealth.
The creation of wealth has two primary facets: time and money. You have a great deal of that most valuable asset – time. A small amount of money invested at a reasonable rate of return grows tremendously with time. The power of compounding is something that I can put to work for you right now.
I did some basic calculations (which will bore you to tears at your tender age) and the result is astounding.
If I invest R5 000 a month for you until you are 21, it will be worth R2.1 million when I give you the key to the door (worth just under R1 million in today’s money). This calculation assumes a 12% return per annum. If we are both lucky enough for you not to need that money when you are 21, and we continue the equation, by the time you are 30 that will be worth R8.3 million (or R2 million in today’s money). Likewise at age 50, it’s R95 million (or R7.3 million). The numbers are amazing.
So that is one pretty smart way of providing for you, getting money to work for you with the help of time, rather than using my time to try and create money. Actions taken today have remarkable financial implications when extrapolated over a long time period.
Bearing in mind the thoughts that I have had while in the bush for a week I jotted down some commitments that I will make to you today:
1. I will try and give up smoking and invest that money for you, your brother and your sister.
2. I will give you the time you need from a dad.
3. I will love you unconditionally every step of the way, pick you up when you fall and never judge you.
4. I will try and develop the characteristics you need to deal with this uncertain future. I want you to be agile, flexible, determined and brave. You must be able to deal with and react positively to change.
5. I will work hard for you, but get money working for you as well to take advantage of the time you have on your side.
6. I will invest R5 000 a month for you and when you are 21, encourage you to leave that money to grow.
So those are my thoughts you precious little thing. I cannot live your life or even anticipate what life will be like long after I have gone. But if you are armed with the character that you already exhibit and some financial freedom, this will help you live the life that I want for you.
Peter Armitage is CEO of Anchor Capital. Follow him on Twitter @Peterarmitage and me @DixxMadika. This letter was republished with permission. Remember it’s never too late.