Albert Einstein once said, “compound interest is the most powerful force in the universe.” Though he was often caught sitting slouched in his velour chair smoking on a pipe, the man himself was no slouch (so I’m told). This is where I would somehow verbally insert the classic Einstein photo of him with his wacky hair sticking his tongue out. And so a blog post begins.
Compound interest is quite a force and should be used at our every turn. The basic principle is that a small, persistent change will aggregate into something quite large given time. The more time, all else equal, the more pronounced or greater the change. If you zoom out on compounding interest it looks an awful like exponential growth. #maths
Let us take the real world example of saving for retirement. Hypothetical Ktowner Jane is 35 years old and wants to retire with $1M in her 401k. She has neglected to open her 401k and contribute until this year, but she opens it January 1 of 2018 and begins maximum contributions of $19,000 per year. At the end of 2018 she has a little over $20,000 thanks to her contributions plus the market at work. She still has a long way to go for her retirement goal, but consistent saving and investing into her 401k has her on the right path. At the end of 5 years she has roughly $117,000 even though she has only contributed $95k. The historical market return of 7% compounding year over year has her investment working for her. After 10 years she has $281,000. If 10 years is double 5 years, why did her money significantly more than double? That is just the power of those early consistent efforts compounding over time. If we double the 10-year horizon on out to 20 years she is almost to her goal with $833,000 dollars – again more money than just the doubling of the time!
That is just a facile example of basic compounding in the US stock market and how it applies to retirement savings. But it is illustrative of the point and can be analogized to so many facets of life. Take exercise for instance. All exercise is cumulative meaning that what we did 5 years ago in some small way still has an effect on us today. Smart, consistent exercise compounds health benefits. What we choose to do today will have a small effect when we look at it as a single day, but once we compound those actions out over weeks, months, and years the effects begin to really add up. Consistency is key.
The same can be said for diet. I am of the opinion that compounding is particularly salient when it comes to diet. That poor decision yesterday is actually pretty meaningless when it is isolated. But when that poor decision leads to another poor decision and then a cascading series of errors one will have negatively compounded into some serious trouble. Not only has your health likely regressed in some measurable way(s), but you have dug a deeper hole from which to now extricate yourself. However, it can be done. And the way to do it is to build positive momentum and move forward. It all begins with that one good decision. And then you have momentum and make another, and it cascades forward in a positive direction at which point each good decision helps lead us to more good choices.
How do you take advantage of compounding? The first step is to begin. Begin working out. Begin eating more vegetables, or if you are already on the train to vegetable town try to get some variety by eating more and different shades of veggies. Begin sleeping more, and if you are already sleeping 8 hours see if can shift more of the hours to before midnight. Then be consistent. Remember our investing example? If Jane had taken the second year off from investing but started right back up in year three, after 20 years she would have had nearly $100k less than if she had been consistent each year. Those early decisions matter immensely as we walk out the timeline. So the decisions we make now will matter a lot more in the future.
The point has been made, I think. But if you allow me to belabor it just a teeny bit further I think I can make a case against the fancy and for the unglamorous tried and true. So if you have made it this far, press on with me!
The stock market is a dynamic, complex system. It is unknowable. And although many a person will tell you otherwise, it is unpredictable. Take for example the fact that over a 15 year period ending December 2016, 92.2% of large cap fund managers failed to beat the simple S&P 500 index fund (a fund that simply tracks the S&P 500, or in simplified terms “the market”)1. This means you are better off putting the entirety of your investment into a passive index fund that tracks the market. There is not a lot of glamour in passively investing in index funds, but they are simple, effective, and time-proven. How does this apply to health and fitness?
Eating meats and vegetables, nuts and seeds, some fruit, little starch, and no sugar is neither glamorous nor complicated. It is a lot like index fund investing: simple inputs that when consistent will reap huge reward weeks, months, and years later. New diets and fads come along all the time with the promise of less work and more benefit, but they just never pan out and often for myriad reasons. It is best to simplify any sort of complex system. The human body is one of the most complex systems. When it comes to feeding keep it simple.
Moving into and out of basic human shapes like hinging, squatting, pushing, and pulling are as old as Australopithecus2. There is a reason that we constantly return to movements like deadlifts, squats, presses, running, and jumping. They are time-honored human movements that elicit the greatest change for the least effort. That does not mean they are effortless though. We strive to perfect these simple movements so we are better able to express ourselves through more complex movements whether that be in the gym, on the field, or in the Mexican salsa club3. And when we work on these simple movements daily we are rewarded with improved health and function. Furthermore, if we are consistent over time we will yield the greatest gains possible and come closer to fulfilling that ever-elusive individual human potential.
So I hope I have convinced you that compounding effects are real, have the potential to affect great change, and that we should be leveraging them to our greatest ability right now. The best time to plant a fruit tree is five years ago. The second best time is today. Get to it!
P.S. – Here are just a few ways to generate compound returns in life:
- Sleep more, and if that is not possible sleep better.
- Wake up early.
- Drink more water.
- Eat more and more varied vegetables.
- Bring your lunch (bodily and financially healthy!)
- Stick to the perimeter of the grocery store.
- Stop eating when you are full.
- Keep a personal calendar.
- Study a foreign language everyday.
- Eat meals with loved ones.
- Read 15 pages of something everyday.
- Ask questions.
- Go on lots of first dates.
- Call your parents and grandparents.
- Contribute early and often to your 401k or IRA.
- Stop lists at 17 items.
1 – https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf