The Power of Compounding

Things add up. You learn one skill. Then another. You finish one project. Then another. Over time, your accomplishments add up to form an impressive feat.

This is especially true for money. Most people earned their money over time. Few people make a big financial splash. Forget about the Conor McGregors and Evan Spiegels of this world. These are people who hit the career jackpot.

But you don’t need special talent or skills to succeed in life. If you take the long road, achieve one goal after the other, and build up your wealth step by step, you are more likely to live a good life.

It’s simple. And it always works. People who say it doesn’t just haven’t had the patience to apply it to their own life.”

-Darious Foroux, “The Power of Compounding.” September 4, 2017.

3 thoughts on “The Power of Compounding

  1. Until hyperinflation, the power of compounding might have been kinda, sorta true. Now, in a mere seven years (at today’s acknowledged rate of inflation, less time if conditions worsen), whatever one earns and manages to squirrel away retains roughly half of its purchasing power. In addition, this ode to deferred gratification fails to account for the ever widened gap between the top 10% and the rest. Does Foroux also try to account for skill acquisition left in the dust by technological change? Finally, I spit on the notion that living a good life is in any way equivalent to building wealth. Far too many examples of maniacs with large fortunes skewing and distorting the aspirations of average folks.

    1. The thing about inflation is it also inflates investments. For example, historical returns for the stock market have been 15% and the bond market is 8%. This includes periods of inflation. Now, it might look different if you have the kind of inflation they have in Turkey right now, which is when you have to look for a stable store of value that will match that kind of inflation, such as gold.

      The basic principle of compounding is sound, and finance is the most common way people tend to talk about it. But, for me, I think of it more in terms of knowledge and skill acquisition. The project I worked on in 2000 that involved designing a database in mysql, using Perl as a CGI language using Apache on Red Hat Linux are all tools I probably wouldn’t use today. However, I do know I could create a web database, if I had a need for one because of that experience. It’s not useless, just because the underlying technologies have changed some.

      Or, this blog is another example. Every day I add a little something to it, and over time, it keeps increasing in value to me. It led to opportunities to write in other forums, It helps me to refine key ideas I think about every day, like compounding, the Helsinki Bush Station Theory, The Theory of Visitors, The Churn, Agree to Disagree or Fight and other posts that together form my view of the world.

      Or, you could take the sayings I collect every month. My individual fortune file has close to two thousands sayings or maxims that I think are important. This is an accretive process that can only be done over time. That’s compounding, and it works.

      I can accept the criticism that compounding can be a way to dismiss the troubles of lower classes and support historical fictions, such as the American Dream. This isn’t an argument for solely individualism and pulling yourself up by your bootstraps. It’s easier to use the power of compounding if your society isn’t undermining your efforts. Turkey, China and other places illustrate that the role of society is crucial.

      But, that said, there is room for individual effort. And, effort compounds over time. That’s a basic fact that we should all have in mind when we think about how we want to be in the world.

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