Friday, January 3, 2020

Compressing Time

One of the greatest challenges in creating wealth is sustaining it. A BIG part of that challenge is trying to compress time by leapfrogging traditional linear investing techniques. In reality wealth creation is AT LEAST a 3-dimensional solution.

The traditional compound interest model assumes that there are simply only 2 variables; time and the interest rate on a initial principal amount. Below is a typical example of a fixed initial savings amount of $5,000 compounded monthly at an 8% annual rate for 45 years.

Visually this looks nice, but virtually no one can succeed in a 45-year holding period. Life just throws too many variables, whether opportunities or disasters, to leave capital alone for such a long stretch of time. Not to mention the interest rate will vary. And the instrument itself (whether it is a CD, Bond, common stock, etc.) also has signifiant systemic risk over that period of time.

My argument is this: wealth creation is much more a function of at least a 3-dimensional solution. In addition to time and interest rate applied to capital we need to incorporate chance. Chance is the missing variable that helps explain the implementation of luck, knowledge, experience, struggle, and failure in the wealth equation.

So rather than a linear result, consider modeling your wealth creation as a 3-dimensional reservoir of time, interest, and chance. Life is far too complicated to rely on a linear approach to building a significant store of wealth. 

Adding this 3rd dimension of wealth creation allows R.I.S.E. Movement members to leapfrog many years, if not decades, of traditional simple or even low-rate compound interest and compress time. By that I mean by successfully implementing chance you have the ability to progress to the leading edge of the traditional compound interest chart rapidly.