The Daily Effort

Nick Bollettieri took the stage with a small wooden box in his hands. He was the keynote speaker at an investment conference in Miami Beach. That was over 20 years ago when I was in my 30s. What did the tennis coaching legend want with this wooden box?

“If I told you that polishing this box for 20 minutes every day is necessary to stay fit and healthy, you‘d do it. You‘d approach the task with dedication every day,” he explained. 

20 minutes for a good life? You bet! Bollettieri’s point was to get us thinking. 20 minutes of exercise a day makes a difference for health and longevity. Polishing a box is easy, but push-ups and squats every day - that's in another league. We all aspire to be stronger, healthier, wiser and wealthier. There is no shortage of goals. But daily effort is often lacking. At least for me. 

The magic of compound interest

Equally challenging is the daily accumulation of assets, ideally from a young age. A monthly sum of 100 euros adds up to 36,000 euros over 30 years. Not counting in interest. Assuming a conservative return, for example 5.7% for equities, by the end you will already have double the amount. Oh, the magic of compound interest! With stocks, not only the assumed appreciation helps, but also the fluctuation in prices. When prices fall, 100 euros buys more shares. That's why the ups and downs of the stock markets are a friend to those investing over long time horizons. 

A fixed savings plan makes the process easier. However, if a larger sum is already invested, the fluctuations on the stock market suddenly feel different. A major setback significantly reduces assets in one fell swoop. But if you are aiming for decades of value growth, you have to weather difficult times. Even if it takes years afterwards to recover historical asset peaks. 

My advice to all investors: Arm yourself with a clear strategy. Learn from the past what extreme price movements are possible in the future. This doesn’t make enduring crises easier, but it does help to prevent rash selling.

Albert Einstein already knew: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” We at Gutmann are no Nobel laureates, but we still like to discuss it with our clients.