Updated: Jun 27, 2021
If I were to ask you what your greatest asset is at this very moment what would you say? Your home? Maybe your car, or a valuable collectible? Your slick new LeBron James NFT? While I would not argue with you that these can all be examples of great assets, I strongly believe there is one asset that rises above the rest. Our time.
I believe time is our greatest asset because it is the catalyst for all the growth we wish to achieve in life. No matter the activity that we partake in, the single most contributing factor to the level of skill that you have is in relation to the time you have committed to that particular activity. In his book Outliers, Malcom Gladwell introduced the concept of the "10,000 hours rule". The rule states to truly be an expert at something, you must commit 10,000 hours of time to that craft in order to master it. This concept has been demonstrated in many different walks of life. Although it is hard for me to believe, Bruce Springsteen did not walk out on stage and rip songs like Born to Run and Jungleland back to back with Clarence Clemons blazing some of the most iconic rock-n-roll solos in the history of humanity, without first putting in his 10,000 hours of guitar practice and performing. Tiger Woods began golfing when he was just 18 months old, achieving 10,000 hours of practice well before even he was on the world stage winning green jackets at Augusta. Warren Buffet is arguably the greatest investor of our lifetime, but look at the table below showing the timeline of his net worth over his life:
The Oracle of Omaha did not become a billionaire or even a millionaire over night. As a matter of fact,95% of Buffet's wealth occurred after his 60th birthday. It took him decades. Hundreds of thousands of hours. Perhaps the most important observation to call out here from the chart above is another added advantage of time: It's compounding.
The power of compounding interest is one of the fundamental concepts of investing. Albert Einstein is notably quoted as saying that the most powerful force in the Universe was the principle of compounding. So, what exactly is compounding interest? Think of it as the money that your money makes for you. Compounding interest over time has a dramatic impact on the growth of your wealth. Let me show you a basic example of how compounding interest works its magic:
Assume you are 25 years old with $5,000 saved. You are ready to invest that money, and take advantage of the 8th wonder of the world: compounding annual interest. (Einstein's words, not mine). Lets also assume you put away $500 a month, and that money generates, on average, 7% annual return in the market over 35 years. If you stuck to just that plan your entire career, not even raising your average monthly savings rate (which as statistics show, you most likely will raise your income over time, and likely be able to save even more than $500 a month) you would be sitting with $1,127,570! Check out the tables below:
Notice how at the 15 year mark, the INTEREST on your money is making you more than the deposits you are putting in! And by your 45th birthday, you will have made more money on the INTEREST than the principle of your deposits. By the time your retirement age arrives, 73% of your total balance will have been earned from letting your money go to work for you. I'm always stunned to see what the power of compounding can do over time. The most important take-aways from this example are:
Starting to invest when you are young, with time on your side makes a massive difference.
Allow the interest to do the heavy lifting towards the back half of your savings life-cycle.
Stay consistent. A plan loses its value if there is no execution. Even if you start small, it helps to make a goal that you believe is easier to achieve, and build momentum over time. Your success to achieve your goals will compound, and allow for you to achieve even greater goals with time.
When I thought about what I wanted my first blog post to be about, I knew I had to write about this concept of time as our greatest asset. As my journey into the world of business and personal finance has grown, this lesson has struck the deepest chord. I too often catch myself trying to rush time, wishing I can achieve a goal, or attain a skill-set faster. But that very action detracts from what makes time so valuable. As it grows, you grow with it. When I think about what I value most in life, it is the people in it, and the time I get to spend with them. I believe deep down, we all share this desire. The experiences with those you love only come at the cost of the time you have for them. With this in mind, I believe it is with the upmost importance that I continue to learn how to best use the time I have in life. That's also what makes time so incredibly unique. It is the only resource in the world that every human being has the exact same amount of. You, me, Bruce Springsteen, Tiger Woods, and Warren Buffet all have the same hours in the day. The only difference is how we choose to spend them.