Count on Time – July 2019
How many “on time” expressions can you think of?
Someone who is always on time. Someone who is never on time. Get there on time.
Do we wish we had more time? Do we never have enough time?
Time is a commodity that we are always bartering with. “If I had more time I would….”
Investing involves time. How much time?
Time and the future happen no matter what you do. You can get philosophical about it or you can let Time do the job Time was meant to do.
Give your money to Time because Time has patience.
Time is the key to returns when it comes to investing. Time reinvests dividends. Time compounds returns.
“Count on Time” means let someone else, someone like Time, do the heavy lifting. Let Time carry your savings and investments into the future.
Have you ever said:
“I can’t do it” Investing is too complicated. It takes too much time.”
Time says: “Partnering with me is easy. Use automatic deductions and savings plans. Have money taken out of your paycheck on a regular basis.
You don’t need to watch Time every day because much of the time, Time is boring.
Every now and then you check in on Time (and your flight is delayed).
Stop thinking about “long term goals” or having enough to retire on. I know this is financial blasphemy, but the future is too far away.
Focusing on a goal that is so far in the future is a clear path to procrastination.
“Hey, it’s 20 years from now so I don’t really have to do anything right this minute”
The future is unpredictable. How do you plan for the unpredictable? Make one decision today.
Today I am going to increase my 401k contribution.
Today I am going to set up automatic deductions from my bank account to my savings account.
Today I am going to look up ONE of the mutual funds I own.
One issue in trying to estimate how much you will need in the future is the “estimated return” calculation.
Long term calculations don’t work because calculations for future returns are based on assumptions that no one can predict.
Here is a hypothetical example:
You want to have enough money to retire in 20 years. To have enough money you assume an average annual return of 8% on your investments. It sounds reasonable but the higher the return assumption the less predictable the outcome.
Instead you assume a rate of return of 4%. It means you will have to save twice as much but you are more likely to be happily surprised as time goes on than massively disappointed because you are so far off the mark.
Today many pensions plans are “underfunded.” Underfunded means that the assets (savings) of a pension plan do not provide enough of a return to pay out current retirees.
For example, a pension plan needs $8 million dollars a year to pay out current retirees.
If a plan has $100 million in assets and assumes an 8% return, that equals $8 million dollars .
So far, so good.
If returns are much smaller, say 4%, it means the plan needs $200 million to earn $8 million dollars.
In this example the plan is “underfunded”.
Pension plans have been reluctant to LOWER their return assumptions because it would mean ponying up more money in the short term to pay for pension costs. As a strategy, assuming higher rates of return hasn’t worked out well in the long term.
Your investments and savings, what you do today, is your pension plan.
With a reasonable return expectation, you won’t end up underfunded.
“Okay time, I’m going to contribute a little more each month to my 401k”
Time says:
“ Great! You do your bit and I’ll take care of the rest. I will compound interest. I will reinvest dividends. I am Time and seeing your assets grow is my job. “
The real secret to growing your assets is to Count on Time.
I like the following article from the New York Times [1]. The article is an abbreviated interview with Mellody Hobson.
Mellody Hobson is co-CEO of Ariel Investments, the largest minority owned investment firm.
New York Times July 23rd, 2019
“Capitalism Needs to Work for Everyone”
Excerpt from the article:
“What do you tell people who are starting on their financial journey, wherever they might be?”
“I start off by explaining to them that it’s never too late, literally never. I also think the most important thing you can learn about money, and Warren Buffett talks about this, is compound interest. It’s the eighth wonder of the world. If you understand compound interest, you understand money working for or against you.
We talk about long-term patient investing, and that idea that slow and steady does win the race, that time can be your best friend when it comes to investing. That’s why we have a turtle as a logo at Ariel”.
[1] https://www.nytimes.com/2019/07/18/business/mellody-hobson-ariel-investments-corner-office.html
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