compounding
Time does the heavy lifting
The rule
The biggest lever in investing is not the return you earn. It is the time you give it. And getting rich and staying rich are two different skills.
Where it flips
Time only grows money you do not touch. Matching money to when you need it is what lets time work. A long time frame on money you will need in a year is only a fiction.
Housel points out that almost all of Buffett's wealth came after he was 60. Not because his returns jumped, but because he had been growing his money for decades. Time, not a higher return, is what turns small saving into wealth. This is why the time frame is the single most important thing R0 teaches you to read. And the two skills differ. Getting rich takes risk and hope. Staying rich takes humility and a fear of losing it. Both matter, at different stages.
A worked example
Two savers each earn 11%. One starts at 25, one at 35, saving the same amount each month. The ten-year head start ends up worth about double by age 60. That is from time alone. [illustrative]
How to spot it
- ·money for a long time frame left untouched
- ·starting early chosen over chasing a higher return
- ·the plan built to be held, not traded
Morgan Housel · The Psychology of Money