Time is all we have.
Time can be our ally, or enemy.
Time is a powerful tool when it comes to investing. Albert Einstein famously said that compounding interest is … “the 8th wonder of the world. He who understands it earns it, he who doesn’t, pays it.”
Which then leads to - when to invest? People often ask when is the best time to invest. Or how to time buying into the markets. In response, there is this adage: It’s time in the markets, not timing the markets that matters. Which takes us back to Mr. Einstein.
We then try to understand what rate of return we need over time to reach our financial goals. For this there is the curious “Rule of 72”. Divide 72 by a rate of return and you will receive a number which tells you how much time it will take for your investment to double. A common target return is 7.00%. So following the calculation … 72/7 = 10.3. So it will take 10 years and 4 months for your money to double. And at the same rate of return it will double again in another 10 years and 4 months. Which again takes us back to the 8th wonder.
There is another view which requires patience and discipline. This view, espoused by Warren Buffett and others, encourages us to bide our time, waiting for the optimal opportunity to buy into the market at its lowest levels. The required patience implies that we hold onto our cash waiting for the optimal point of investing, and not spend it on something else (which is difficult). The required discipline entails 1) maintaining our focus on what it is that we want to buy, and what price we are willing to pay for it, and 2) executing on this strategy when everyone else is panicked with fear in collapsing markets (again difficult to maintain).
Certainly this strategy yields handsome returns and can augment the 8th wonder, while lessening the number of years required for doubling our money. But few have the required patience and discipline, which brings us back to time in the markets being more important than timing the markets – or maybe a combination of these strategies.
Time can also be quite fluid, though we might seem to think it is linear, as measured by clocks and calendars. Why does time fly when you’re having fun? Or it may seem like you are waiting for the end of time if you are engaged in a mind-numbingly dull task. Looking back, time has passed in the blink of an eye. Or time stood still in a moment of marvel.
So, though we work with linear tools to measure time, we can also experience events that turn these notions upside down. Ten years ago I met with some dear clients in their home overlooking the backbone of the coral reef as it curved off into the horizon. On one side of the reef was the indigo blue of the deep ocean, and on the other were the shades turquoise of the shallow water leading to the sandy beaches of the string of islands. Time stood still for me as I took in this spectacular vista.
While enjoying the view, the discussion of Amazon stock came up. At the time it was trading at $160. Analysts had been deriding its price and valuation because it didn’t fit with accepted metrics. At over $2,000, and ten years later, it still doesn’t.
Some may also recall Bre-x, a gold mining company which also defied valuations and metrics. It ended up as a fraud.
So we pay attention to metrics, while also being attuned to the fluidity that time and life bring.
As I have mentioned in previous articles, the planning side of our time on this planet means organizing our affairs with a will and powers of attorney.
A will allows for a smooth-ish distribution of assets when we depart. But the reality is that once our time is up the owner of the assets has little concern over their distribution. On the other hand, those who remain often have a very different view.
Powers of attorney, then become more relevant as they have a direct impact on the quality of our time while we remain. Having directed specific individuals to act on our behalf when we no longer have the capacity, and doing this properly, can vastly improve the quality of our remaining time. Any number of incidents or illnesses can have a profound impact, immediate or otherwise, on our capacity to act for ourselves. So while time is still on our side it would be prudent to have powers of attorney in place. We never know when they might be needed. If we need them and they not in place, then time has run out, and it’s simply too late. As an aside, you can email me for a sample POA.
Our time is finite, but we never know when that final moment will arrive. In the meantime, there is this vast experience we call life to explore. Part of this experience is to believe that we will live forever, and so we must plan with the tools at our disposal. While the other part of the experience is to spend each moment in time as if it were our last.
After all, time is all we have.