Time is Money (Too..!)

Jim Gardiner Author

This is an up-to-date, revised edition that further emphasizes why Time is much more important than Money when it comes to Long-Term Investing...

Time is Money (Part 2!)

I first wrote and published this post on Dec 31st, 2019. It was on my first website. I had no idea what I was doing (as a blogger) and I very quickly got tied up in knots of self-doubt and perfectionism that prevented me from moving forward. Nothing I wrote was good enough for me to publish!! For that, I must apologize.

You may wonder why I am apologizing? It will all become clear as I now re-publish this content with some added paragraphs to outline how the world has developed while I was procrastinating… (the additions are highlighted throughout the post…)

A brief overview of how stock markets work + how to start today…

If you are aged between 20 and 40 years, you could be forgiven for feeling pessimistic regarding your future financial security, but don’t despair!

You have an asset worth much more than it seems.

You have Time, and Time is worth much more than money….

I don’t mean so you can ‘do it tomorrow’ like so many of my best plans, I mean you have Investing time. Lots of it, I hope, because Investing will grow wealth. But it needs time…

What’s more, you do not need a fortune to make money on the Stock Market, in fact, a small amount can go quite a long way if you have the time… Take a modest €20 note, it’s not what it used to be, is it? €20 these days will just about buy you a coffee a day, for a week.

If you can put aside €20 every week, you can make a significant impact on your future finances.

I said €20 a week because that is equal to roughly €1k a year, which keeps things simple.

So how do stock markets work?

Here’s the basics of a chat that I had with a market skeptic recently…

S: Are you still messing at the markets?

Me: You bet! Do you know what would €1k on the market for last 20 yrs be worth?

S: Eh, well 20K + the interest… DUH!

Me: Plus the interest…

S: That’s what I said!!

Me: No, 20K + Interest

+ Interest ON the Interest

INTERESTED??…?
(sorry)

The difference is compounding... 

The concept is that simple, just tricky to calculate with a pen. I don’t want to go on and on explaining it because people’s eyes glaze over rapidly… It is not an exciting subject, but it is a remarkable wealth creator. 

It is also very complex to calculate on a repeated basis. Thankfully Excel or Google Sheets find it really easy to figure!!

Compounding is much easier to show than explain. Have a look at the example below…

I will use €1000 for this example, as this equates to putting aside roughly €20 per week for a year.

If you had Invested €1k in the S+P 500 on 1st Jan. 2010, not that many were ‘flush’ in 2010, but if you had, it would have returned €1150 for that year. That's 15%. A good return on any year.

However if you had just left it alone, to compound, for the 9 years up until Jan 1st 2019, it would have been worth €2911.77

Did your savings account treble your money in the last 9 years??

Neither did mine….

Now consider if you had invested €1K on Jan 1st every year, since 2010. That’s €9K anyway, + what?

That would be worth €15,619 on Jan 1, 2018.…

Shall we go back a little further? Check out the following returns based on different start dates:

Now is a good time to introduce some revisions because as you can see the table above is quite dated… Now you will see why this post is a hybrid of new and old material…

We will start with the written example of €1K invested in 2010 and left this time, until Jan 2022. Today's value is €5,423.  (up from €2,911 in 2018)

€1K every year for 12 years? €12k invested becomes... €35,997. (up from €15,619 in 2018 - These are real returns based on real market results, there is no fiction here...)

The following table brings the data up to Jan 1st, 2022. All I can say is wow! (in case you missed it, the economy was CLOSED for a portion of this add-on!)

You do NOT need a degree for this….

There are lots of ways to make and lose money on company shares, but there is no real need to take any more risk than investing in the overall market Index.

A market index tracks the performance of a collection of stocks and reflects the combined performance as a single price. To buy a share in that index fund offers you exposure to the performance of all of its component stocks.

By default, this provides security because you can’t put all your eggs in any one basket, but it spreads your eggs in many baskets!!

The S+P 500 is an index made up of the top 500 companies in the US (or 500 baskets...) This Index is considered to be an accurate indicator of the financial health of the US corporate world. This is also one of the more stable markets that you could invest in.

The Dow Jones and Nasdaq are also major market Indices in the U.S. (There are other, less prominent indices too…)

Other economies have a representative index, and should definitely be included in a properly diversified investment portfolio, but for the sake of explaining the world of Long-Term Investing, I will base it on the S+P 500.

It can seem a little daunting at first…

Investing is a broad and sometimes bewildering subject, if you don’t know how stock-markets work…

Stocks can be affected by a huge myriad of factors that CAN be predicted and/or anticipated, and an even larger number of things that could almost never be imagined, let alone foreseen.

The huge fluctuations that are seen in the markets are usually based on short-term impacts that are corrected very quickly. Traders will buy and sell at these times to try to profit from the movement, these are pros, and the majority of them lose. We are not pros. Don’t allow yourself to fall into this trap. I’ve been there… I lost.

However, it is only a full recession that takes down everything for a considerable time. The S+P covers almost everything…

Recession will happen again, but unless America stops going to work, …permanently…, then it will recover again too. It is that simple. If you are 20 yrs or more from retirement, recession can be welcomed as an opportunity, as quality stocks go “on-sale”….

All you need is patience… (and a little cash!)

Enormous returns are available, just on the index, requiring little to no education on the subject, for those that aren’t excited by the numbers end of things. BUT IT TAKES TIME…

The only real discipline required for those less excited is the ability to leave it be…. Let time work for you… That is how stock markets work… And of course to make it really work well, keep adding funds that you can afford to leave long-term…

The shortcut is to just automate everything….

But I’m the type that DOES find it exciting and interesting, so I have tried to ‘Beat the market’ (and succeeded) by only buying what I consider to be ‘Best in Breed’ from each sector, ignoring those that are out of favour for new money.

The indices will always include some of those out of favour stocks, but that is part of the protection that you get from an index approach. Because NOBODY can know what a share price will do in the short term, they can make an educated guess, but it’s still a guess.

The S+P Market Index has returned an average of 11.62% per annum, since 1988. (The updated figure including returns for 2019, 2020, and 2021 is 12.89%) This is generous by all accounts. Those 30 years have included many “hiccups” such as the Dot-Com Bubble/Crash of the millennium year. (Over 30% drop from 2000-2003) and the Banker Induced recession of 2008. (Dropped 37% in ‘08)

Then there was Covid… 

Discovered in December 2019, Coronavirus spread out of China and across the world like nothing we have seen in generations… Within 8-10 weeks, much of Europe was in lockdown with businesses closed and people cowering indoors. Only ‘essential’ businesses operated and supply chains started to falter. The stock market crashed over the space of about 5 weeks, bottoming on March 23rd, 2020. Soon after that, there was talk of progress on the vaccines to solve the issue and the market started to relax. 

The rally that followed was mind-blowing…

Is age on your side?

If you are younger, you have much bigger results before you than older investors, regardless of your means… The time you have is of greater proportional value than the figures would have you believe.

Of course, those nearing retirement soon would take a very different approach, reducing equity exposure, and introducing different ‘guaranteed’ securities, including bonds and other more secure instruments.

The trick is to know your risk tolerance. Your tolerance for risk should, logically, be lowered as you near retirement, as you will soon intend to spend the portfolio…

But younger readers that have not yet invested, should count every year that passes, as money LOST. Why you ask? Because Time is Money!

Learn as much as you can about how stock markets work and stop the rot!

Let’s look at some “What If’s”….

This requires some hypothetical assumptions, but nothing is EVER certain..

The S&P 500 Index grew an average of 11.2% per annum, over the last 30 years. But it would be crazy to assume it will do as well as that for the next 30. (Though it could!) So I will use more conservative averages for potential returns.

I will use a range between 7.5% and a 10% potential average returns with €1K (€20 per wk) and €2K (€40 per wk) investments:

Outlined above are some hypothetical returns based on a predicted market outcome, and those figures are entirely fictional, but the CALCULATION is not. IF the market meets the assumption, then the sums do add up.

I also must add that the withdrawals section assumes the average is maintained throughout the entire period.

But my emphasis here is actually on the different values returned from two time periods. 20 years and 30 years. You can see that in this case, Adding 50% more investing time, adds 100% more money to the final total.

So to it wrap up…

This was just an introduction to how stock markets work and the world of long-term investing. The above predictions could be too optimistic, but they could also be too conservative. The reality is that we do not know. We will only know for sure after the fact.

What we do know is that doing nothing will get you nowhere!!

The market is not as complex as it seems. With a little understanding, you can aspire to get better returns than I have outlined, but there is no need if you don’t find it exciting. Just follow the plan outlined above, with minimal effort. The entire process can be automated.

If you do find it exciting, then simply understanding the value of a share, the outlook for the future of a company, and some basic market know-how can equip you even better, to strive for beating the market. Over the LONG TERM…

I find it fascinating, and as I explain and teach people how stock markets work, my interest continues to grow… I want to help as many people as possible, to understand and harness the growth opportunities that the market makes available to us all, to help more people secure a prosperous future.

If you want to know how to get this sort of growth over the coming years, sign up for the Newsletter, where I will keep you up to date on all the latest material from Investor Gym, sign up for one of the regular Free Webinars to introduce beginners, and check out the Resources page to see if the Beginner Investing Guide course is ready…

So that’s it. What are you waiting for?

Didn’t I mention Time is Money??