Tides are amongst life’s certainties; we can set our clocks to them. We see them go in and out, in and out – they never cease. Tides are the motion, the power of the seas and oceans. Overtime they shape the world.
In financial planning, compound interest is the tide.
As Albert Einstein said: “Compound interest is the eighth wonder of the world. He who understands it, earns it; He who doesn’t, pays it.”
It is compound interest that will shape your financial life and your world. You should pay extreme attention to it and make sure you are earning it and never interrupt it once you are.
Waves on the other hand are temporary. Although they can look impressive and alluring, they can be dangerous.
In financial planning the waves are investment fads, stock market dips, geopolitical tensions etc. They seem to require your attention, but they don’t. Jumping in and out of this thing or that, reacting to the latest headlines – focusing on the waves – interrupts compounding. You might catch a big wave now and then and do better than everyone else, but equally big waves can wipe you out.
Always remember that the tide is all the ocean in motion, waves are a tiny fraction of that, a simple surface disruption.
To harness the true power and potential of compounding you need to understand that it is not the highest returns that need to be earned, instead it is the best returns that can be sustained for the longest period of time. That is not going to happen if the waves have your attention.
They might be invigorating and exciting and promise great times, but they are no substitute for the compounding of tides.