What an absurd idea to suggest immortality. I know that there isn’t anything near there. But from the perspective of personal finance, this is exactly the main point that I am trying to bring across to you and hopefully I am successful in nailing it down to you. You see, if we truly live forever, then money is no longer an issue. There is in fact no struggle for personal financial freedom at all. I will show how you can take this principle of "Money doesn’t matter when we are immortal" concept to our daily financial planning and investment plans. Trust me, you will be surprised how simple truth are often ignored or missed out.
Why money is no longer an issue when we can live forever? The answer lies within the secret of compounding interest. One of the main variables used to calculate the future value of any investment is Time. Time determines how much is our net worth growing at any given rate of return on our investment. Let me bring this into some money figure so that we could understand better.
Let say we started to invest $1000 into a fundamentally strong company stocks or any fixed deposit that yield a minimum of 5% return annually and we just let the money work for us without our intervention. How much will our net worth be at 100 years later or 300 years later? Try to make a guess. At 100 years, our $1000 will grow into $131,501 and at 300 years, it will grow into $22,739,961,128. Wow!! Some of you might say that 300 years is just 3 times of 100 years and probably the net worth of the investment should be just about 3 times of $130k. But you are wrong. You may check with any accountant if you don’t believe me. In 300 years, the initial investment capital of $1000 with a rate of return of merely 5% would turn out to be more than $22 billions.
How about if we can do slightly better than 5%? Let’s not be greedy, try out 6% which is 1% more. In 100 years, our $1000 would turn into $339,302 and in 300 years, our $1000 would become $39,062,459,052. Wow!! What a big difference 1% would become in many years later. How much is $40 billions? It is a lot of money we are talking here. It is more than what you can spend in your lifetime. Now do we have an agreement that money does not matter anymore when we can live for 300 years?
Now you may say that this is absurd as no one lives for 300 years. Well, you are right that no one lives for so long. But you just missed the point here. This is all about financial planning. It isn’t just about us. It is about our children and our grand children and the generations after us. Have you thought of saving some money for your kids? I believe most sensible parents do think about that. What I am doing is just to extend that thought to our grand children. Let say each generation has about 70 years of lifespan and each generation starts out after the previous generation reached the age of 30 years old. At the third generation alone, we are reaching the total lifespan of 130 years. Now, who says those 300 years is not achievable thru our bloodlines?
Have our eyes opened and our minds enlightened? Let’s face the fact here. $1000 isn’t a great amount and we can easily raise that amount for most families. How about the return on investment of 5%? Well, that is also within the reasonable range. In fact most good fundamental companies yield more than 8% to 15% annually. The puzzle now started to reveal the whole bigger picture. The initial investment capital, the return of investment and the time of our families’ lifespan are all within reasonable figures. So how about if I say that we just set aside $1000 for our children and another $1000 for our grand children and another $1000 for our great grand children? Another interesting point is that all this can be done thru will writings and estate planning. Wow!! Amazing, isn’t it? That is the power of compounding interest.
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