Tag Archives: Compounding

Stop Building Your Own Prison

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Stop building your own prison. The bars are made of your own making—your own current and past choices, writes Going Vertical Coaching.

Most entrepreneurs and business owners spend years trapped. Working in their business, not on it. Asking, “How do I find more time?”

But nobody’s forcing you to stay chained to your desk.

The freedom you crave?
It’s already within reach.

That system, you know, you need to build.
That process you’re afraid to delegate.
That control you keep refusing to release.

Start today. Start simple. Keep it Simple. Start somewhere.

Your business and actions should serve your life.
Your unique vision deserves space to breathe.
Your freedom matters more than perfection.

Stop waiting for:

• More revenue
• Perfect processes
• The right team
• Complete certainty

Because while you’re waiting, your competitors are systematizing and progressing.

So stop micromanaging and start building systems.

Your future self will thank you.

Decisions You Make Today Count

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Everything you have right now—your bank account, your body, your relationships—is just the scorecard from decisions you made three, five, ten years ago, writes author Scott D. Clary.

You’re living in the past’s future. Which means five years from now, you’ll be living in today’s future. The choices you make this week, this month, this year. That’s what you’ll be stuck with.

Most people don’t connect these dots. They treat today like it’s isolated. Just another Tuesday. Nothing special. Decisions feel small in the moment.

They’re not. They’re compounding.

The workout you skip today isn’t one workout. It’s a vote for who you’ll be in 2030.

The relationship you neglect isn’t one missed dinner. It’s a trajectory.

The skill you keep putting off isn’t just delayed; it’s lost. It’s five years of compound growth you’ll never get back.

Today isn’t neutral. It’s a deposit or a withdrawal on a future you haven’t met yet. Your current life is mostly the accumulated result of past choices, not random luck.

Make it count. Five years from now, you’ll be “stuck with” the compound effect of what you choose to do this week, this month, this year, so today isn’t neutral—it’s either a deposit or a withdrawal from your future life.

— Source: newsletter.scottdclary.com

The Power of Compounding

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There are two things to direct your attention to.

  • First, the power of compounding. A 12% return in one year isn’t life changing, but stay invested for 20 years and, on average, you’ve grown your capital nearly ninefold.
  • Second, notice that the lowest number on the chart is the worst one-year return, a 39% loss. As the time extends, not only do the average results improve, but the worst losses also get smaller.

Over the long-term, the worst 20-year S&P 500 returns result has been a gain of 155%. The fact that risk decreases with time is apparent in the annualized standard deviations, which are lowest for the longest holding periods. That means the annual returns are not independent of each other, but rather, are mean reverting. And that’s good to know after a year like this year.

That’s why buying stocks only for investors who can leave their money in the market for multiple years is encouraged. If you expect to cash in your stocks in just a year, you expose yourself to a loss that is multiples of your expected gain. If you can wait five years to cash in, your expected gain is multiples of the worst historical loss. And if you can wait 20 years, there has never been an outcome worse than doubling your investment.

You shouldn’t buy stocks if you expect to sell within five years. And you’re  also discouraged market timing. Most investors tend to throw in the towel after large losses and go all in after large gains. History says the opposite has produced better results market tended to increase more than usual following a bear market. The average two-year increase was 33% after hitting down 20%, meaning the market had usually recovered more than all its losses within two years. Further, that 33% gain was nearly double the median two-year increase. This positive outlook can be hard to wrap your arms around given that most advice you hear, especially from professionals, is to get more cautious after the market has fallen.

The tendency of good periods following bad and vice versa is part of the reason why the long-term risk-return characteristics of equities have been so favorable. The table below shows the average 1-, 5-, 10- and 20-year total returns for the S&P 500 for the past 77 years and the best and worst returns for each period.

References:

  1. https://oakmark.com/wp-content/uploads/sites/3/documents/2022-0930_Oakmark-Funds_Annual_Report.pdf