Scene from Greek history: The deaf-mute son of King Croesus prevents the Persians from killing his father, by Salvator Rosa, c.1663-64.
Lucky you! You don’t have to wait for my next installment on Simple is Sophisticated. Going back ten years now, in May 2006, my father-in-law Dick Young wrote to his treasured readers about a simple strategy: Simple is Sophisticated. Easy to understand, but hard to do. For long-time readers this is nothing new to you. The only difference for you is you have a much larger pile of cash from following the advice in Richard C. Young’s Intelligence Report. Why is a Simple is Sophisticated approach the key to happy investing and life? Easy, you let your money work for you. And how do you do that? Through compound interest. (Oh, and by the way, you can gift $14,000 today).
Rich as Croesus
I want you to begin on your quest for sophistication through simplicity by focusing laser-like on compound interest. Here is an amazing story. I call it my grandchildren’s “rich as Croesus” strategy. (Croesus was the last king of Lydia from 560–547 B.C.)
When each of my four grandchildren was born, I opened accounts for them at Vanguard’s [redacted] fund. Each year, I deposit $10,000 (and yes, I know you can now give away $11,000/year tax-free). The money is invested with little in the way of long-term tax implications. Let me show you how compound interest works its magic.
Gettin’ Rich Slowly
If you invest for a compounded rate of return of 10%, it’s easy to think that your long-term return would be twice the return gained by investing at 5%. That is not the case—not by a long shot. Let’s take a longterm look here, for that is my intention with my grandchildren. Investing $10,000 at 5% for 50 years gives them $115,000—a staggering sum, to be sure. But at 10%, $10,000 grows to a mind-boggling $1,174,000 (that’s million). Double the growth rate to 20% (admittedly unrealistic, but useful in this example), your $10,000 would become a stratospheric $91 million (over 77 times the return). And you thought you understood compound interest?