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221 – The Power of Compounding Interest
Click below to listen to Episode 221 – The Power of Compounding Interest
The Power of Compounding Interest
Your Impatience May Be Costing You Hundreds of Thousands of Dollars
More episodes >>
Learn about one of the most powerful mathematical formulas that has been around for hundreds of years when it comes to investing – The Rule of 72. Bob and Matthew break down compounding interest and how it works through the unique mathematical formula of the Rule of 72. The Rule of 72 truly shows the power of compound interest and how it can dramatically impact long-term wealth building.
Investing must have a long-term perspective by avoiding distractions. By just being patient and not removing money periodically from your investments, the Rule of 72 demonstrates how money can double in value over time at a given rate of return. How else can you enhance your investment portfolio? By starting young and investing early, as discipline is crucial.
HOSTED BY: Bob Barber, CWS®, CKA®
CO-HOST: Matthew Barrovecchio
Mentioned In This Episode
Christian Financial Advisors
Website
Bob Barber, CWS®, CKA®
Shawn Peters
Bible Verses In This Episode
2 CORINTHIANS 9:6
Remember this: Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.
PROVERBS 14:24
The wealth of the wise is their crown, but the folly of fools yields folly.
ECCLESIASTES 9:11
I have seen something else under the sun: The race is not to the swift or the battle to the strong, nor does food come to the wise or wealth to the brilliant or favor to the learned; but time and chance happen to them all.
PROVERBS 3:9
Honor the Lord with your wealth, with the first fruits of all your crops;
Want to ask a question about your specific situation? Schedule a complimentary 15 minute phone call.
SCHEDULE AN APPOINTMENTDid you enjoy this episode? Sign up for email updates and never miss an episode.
EPISODE TRANSCRIPT
Matthew (00:00):
Did you know that Einstein called compound interest the most powerful force in the universe? Whether you’re 25 or 55, understanding the simple math behind this wealth building could dramatically change your financial future. We’ll explore how time and consistency can transform modest savings into significant wealth, and why waiting or withdrawing can cost you way more than you think. Let’s get some perspective. Welcome to Christian Financial Perspectives. I am Matthew Barrovecchio, joined by Bob Barber, and today we’re going to talk about the power of compounding interest.
Bob (00:45):
A pretty exciting subject for me. As you know, I’m kind of a math nerd, and when I heard this as a kid, it started absorbing into my mind. But I’m really seeing the power of compounding now at my age of 62. So today is a great program for young and old alike, and I really want everyone to get in touch with this because compounding is extremely powerful and I’ve got some great scriptures to go with it. And then we’re going to quote some geniuses from the past too about what they said about compounding.
Matthew (01:23):
That’s great. There’s power in the name of Jesus, and there is power in compounding interest. So let’s take a look at what the word says here. So 2 Corinthians 9:6 says, “Remember this, whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.”
Bob (01:42):
What do you think of that scripture?
Matthew (01:43):
I mean, that’s a promise straight from the Lord, and it’s encouraging. It doesn’t necessarily mean that if we sow monetarily, we will reap monetarily. It doesn’t mean that if we sow in this lifetime, we will reap in this lifetime, but we have an eternal perspective.
Bob (02:00):
But there is a scriptural principle behind sowing and reaping.
Matthew (02:04):
Absolutely.
Bob (02:04):
It’s very clear in this scripture.
Matthew (02:06):
Proverbs 14:24 says, “The wealth of the wise is their crown, but folly of fools yields folly.” It’s a tongue twister.
Bob (02:19):
Okay. So as you look at this and you think about this, this will make a lot more sense as we get into the compounding and how the wealth of the wise is their crown. The wise, there’s wisdom in compounding. This’ll make sense. You just got to stick with me on this, all right.
Matthew (02:35):
Let’s do it. Ecclesiastes, a lot of wisdom in this book, 9:11, “I have seen something else under the sun. The race is not to the swift or the battle to the strong, nor does the food come to the wise or the wealth to the brilliance or favor to the learned, but time and chance happen to them all.”
Bob (02:56):
A key word, okay, time. In Ecclesiastes, it talks about there’s a time for everything. It’s not always about now, it’s about the future. And then Proverbs 3:9, “Honor the Lord with your wealth, with the first fruit of all your crops.” So as we’re talking about compounding, we’re talking about honoring God with that as well. Now, I’m going to make a switch, and we’re going to look at some worldly men, and one of them is Albert Einstein. Ever heard of Albert Einstein?
Matthew (03:31):
His hair is different than mine.
Bob (03:34):
His hair is very different…
Matthew (03:35):
Very different than mine. We did not go to the same barber, no pun intended, Bob Barber.
Bob (03:41):
That is true. It’s interesting that he’s a brilliant man. Many people knew him as a brilliant man. He said one of the most powerful forces in the universe is compound interest. And he referred to it as one of the greatest miracles known to man.
Matthew (03:57):
Miracles around us. That’s great.
Bob (03:58):
And then Benjamin Franklin, what a hoot he was. And he was fascinated by it. And he built this legacy. He left just $4,000, which was a lot back then. He left it in a trust for Boston and Philadelphia. Later, that turned from 4,000 to six and a half million dollars. That’s compounding.
Matthew (04:20):
Didn’t you tell me the other day that he was intentional within the trust to make sure that it couldn’t be touched for like a hundred years or something?
Bob (04:27):
Yes, exactly. Yep. He sure was. And then who’s the modern day, the modern day financial guru that we were thinking in the worldly sense?
Matthew (04:35):
Shawn Peters? No, not him.
Bob (04:38):
Warren Buffett. Yeah, Warren Buffett, yeah. And one of the three things he said that wealth has been a combination for him of living in America, some lucky guesses and genes in compound interest. So we’ve got scriptures that show sowing and reaping and wisdom. And then we’ve got some very smart worldly men as well that says compound interest is amazing. And it is, and it really comes down into the rule of 72.
Matthew (05:06):
What is that? Yeah, tell me.
Bob (05:09):
Tell you, huh? You know what the rule of 72 is?
Matthew (05:11):
I do.
Bob (05:12):
But okay. So the rule of 72 is a mathematical rule that when I learned it in school, I thought, man, this is really cool. People think, man, you are a math nerd. But the answer is, if you take a certain rate of return and you plug it into the number 72, and then that will tell you how long it takes for a dollar to double to $2 or 100,000 to double to 200,000 or a million to double to a 2 million. What’s interesting in all of these scenarios is a dollar to double to $2, it takes the same amount of time at a stated rate of return as it takes for a million to double to 2 million. That’s the power of what I see in the rule of 72’s. And you got to understand the rule of 72’s to understand compounding and how that works. So always in my head, I can go 2, 4, 8, 16, 32, 64, 128, 256, I double this because that’s the way my mind thinks about math. But let’s just assume a reasonable kind of, maybe a moderate to growth portfolio, 7% return.
Matthew (06:34):
Over a long period of time.
Bob (06:35):
Right? Yep. So 7 goes into 72 about 10 times, right?
Matthew (06:39):
A little less, but yeah.
Bob (06:40):
So yeah, it’s actually…
Matthew (06:43):
A little more rather.
Bob (06:44):
It’s what?
Matthew (06:45):
A little more than 10? A little more than 10.
Bob (06:47):
Yeah. But it’s like 10.2. Okay. We can get technical here, of course, but at 10 years it’s saying if you have a stated amount of money and you don’t touch it, you don’t withdraw. Just leave it there. It’s going to double.
Matthew (07:01):
Yeah. So the don’t touch it piece and the time aspect is really important because what could happen, and we’ve seen this in investment principles across in our careers and in our experience of stewarding people, but let’s take the concept and apply it to this is, okay, compounding interest is going to work over the course of say, a 40 year career, but a couple years into it, if it’s not working out exactly how one thought it would, they abandoned the strategy, they abandoned the principle. And that’s exactly the opposite of what we want to do. You want to stay steadfast, trust the math, trust the process, and focus on the long-term is a good recipe for success in this.
Bob (07:47):
So I think you have a real good example of this that you’re going to go into in a minute. But yeah, it is so hard to think about compounding. Cause the time and when you’re in your younger years, you can get so easily sidetracked of all the things that are hitting you right now. So it takes a lot of discipline. But discipline is how wealth is obtained by discipline and doing the same thing and being very consistent in your life and following those biblical principles.
Matthew (08:14):
There can be a lot of distractions, including financial FOMO, which we’ve talked about a podcast before. And so we want to stay steadfast. All right, so let’s take a look at an example. If we assume 7%, which for a moderate portfolio, stocks, bonds, mixture over the course of a 40 year career, it’s reasonable roughly, Investor A invests 3000 every single year for the first 10 years of their career. And then starting in year 11, invests no more, right? So the 30 years after, they don’t invest anything.
Bob (08:52):
So they put $30,000.
Matthew (08:53):
30,000 in.
Bob (08:54):
3000 a year.
Matthew (08:55):
Three grand in for 10 years, and then just allow that to continue compounding interest.
Bob (09:00):
Not putting another penny in?
Matthew (09:01):
Nothing else. Okay. Alright. Investor B does the exact opposite. They don’t do anything for the first 10 years starting in year 11. For year 11 through year 40, they do the same $3,000 each year. Who do you think has more money at the end?
Bob (09:17):
Well, I think investor B would, wouldn’t he? Because he’s been investing for 30 years versus 10 for the first one.
Matthew (09:26):
Yep. So many people would think that, but that’s obviously based on…
Bob (09:30):
I knew that’s not the case.
Matthew (09:33):
So at the end of the 30 year career, you have investor A who has about 30,000 – 35,000 more dollars in this example than Investor B. Again, while they only invested 30,000 of their assets versus investor B who invested a total of 90,000.
Bob (09:52):
Oh, okay. So the Investor B had to invest three times the amount to get to the same. Oh, actually he had less.
Matthew (10:00):
He had about 30,000 – 35,000 less. So again, investing early and investing often and staying disciplined to the plan is really this key to success with compounding interest. And so for our younger investors, hey, every little bit counts. So it can be very powerful over the course of your lifetime.
Bob (10:23):
But there are two things that can really hurt the compounding effect.
Matthew (10:28):
Kind of just spoke about the first one. What are they?
Bob (10:30):
Well, number one is, yeah, you did speak of it. The cost of waiting, because the younger you are, the more time is on your side and waiting is tremendously costly. I want to explain something real quick too here that you didn’t share an example, but I’m going to give an example is that at my age, 62, we meet a lot of investors. I mean, they’ve been investing in a 401k, they’ve been getting a match, and they retire and they have a million dollars and they’ve been consistent, 30 years they’ve been investing. It’s possible, very possible today, and it happens all the time. So they have a million dollars. So you realize if they don’t touch that million for six or seven, eight years, it’s going to double or 10 million. And we can’t say for sure. But we say it can. Right? And it has in the past. So when I look at this and think about the cost of waiting, I look at the cost of waiting as taking a million and it going to 2 million, and that person that’s waiting to save $200 or $300 a month,
(11:45):
That’s what they’re waiting. You can get that just from not buying an expensive coffee every day. Or you can get half of that and then your employer’s going to match the other half with the 401k match. That’s costing them $7,777 a month. And all I’ve done is taken a million and divided it by 10 years, divided it by the month, bought it all the way down 7,000. So for every month you wait to save $200 or $300, it’s costing you $7,000…
Matthew (12:18):
Wow. That’s pretty powerful.
Bob (12:21):
…Later down the road. That’s very, very powerful. The second example I see that blows compounding is the cost of withdrawing to go buy a depreciating asset like a car. I mean, a car today costs $50,000, a nice one, 40-50k. You buy one of those trucks we drive right here in Texas, you’re talking 80,000 to 100,000, but let’s say $50,000. When you are withdrawing $50,000 from a portfolio, now you’ve taken that part that can no longer, that 50 can no longer turn into a hundred, turned into 200, let’s say over a 20 year period. And I always like to ask the question, if you buy a $50,000 car today, you’ve hurt your portfolio by $200,000 in the next 20 years, what’s the car going to be worth in 20 years? Or the truck?
Matthew (13:18):
Right. Very little.
Bob (13:19):
Very little. It’s 20 years. It’s probably in the, where they take cars when they die. I dunno that much about all that, but that’s probably what it is. The power of compounding is just simple math, right?
Matthew (13:36):
That’s it. Very simple.
Bob (13:37):
If you can understand this concept, I will say at 62 years old, and I’ve been disciplined, it kind of blows my mind every day to see what’s happening, to see how it was just so small amount that was doubling at first, but now it’s getting bigger and bigger. If you put it on a graph, if you’re listening to the podcast, you can’t see this, you’re on YouTube, it just kind of goes like this. It feels like it’s going straight up.
Matthew (14:06):
It’s the momentum.
Bob (14:07):
It’s the momentum. The momentum is building so strong. And I think that’s why you ever heard the term the rich get richer?
Matthew (14:15):
Of course.
Bob (14:15):
Yeah.
Matthew (14:16):
And again, it’s very simple, but it’s very powerful and it’s staying disciplined to and focused on that. And like we said earlier, not getting distracted.
Bob (14:24):
Yeah, exactly. Well, that’s going to do it for today for our program on Christian Financial Perspectives. I hope you’ve learned about compounding and the Rule of 72s, probably might be the first time you’ve ever heard this before, but if you’d like to give us a call.
Matthew (14:37):
Yeah. So if you want to hear more about how compounding can help your situation or apply to your situation, call us or text us at (830) 609-6986 or visit us online at our website, www.ChristianFinancialAdvisors.com. God bless you, and we’ll see you soon.
[DISCLOSURES]
* Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.
View all episodes
By Christian Financial Perspectives
4.8
1818 ratings
Click below to listen to Episode 221 – The Power of Compounding Interest
The Power of Compounding Interest
Your Impatience May Be Costing You Hundreds of Thousands of Dollars
More episodes >>
Learn about one of the most powerful mathematical formulas that has been around for hundreds of years when it comes to investing – The Rule of 72. Bob and Matthew break down compounding interest and how it works through the unique mathematical formula of the Rule of 72. The Rule of 72 truly shows the power of compound interest and how it can dramatically impact long-term wealth building.
Investing must have a long-term perspective by avoiding distractions. By just being patient and not removing money periodically from your investments, the Rule of 72 demonstrates how money can double in value over time at a given rate of return. How else can you enhance your investment portfolio? By starting young and investing early, as discipline is crucial.
HOSTED BY: Bob Barber, CWS®, CKA®
CO-HOST: Matthew Barrovecchio
Mentioned In This Episode
Christian Financial Advisors
Website
Bob Barber, CWS®, CKA®
Shawn Peters
Bible Verses In This Episode
2 CORINTHIANS 9:6
Remember this: Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.
PROVERBS 14:24
The wealth of the wise is their crown, but the folly of fools yields folly.
ECCLESIASTES 9:11
I have seen something else under the sun: The race is not to the swift or the battle to the strong, nor does food come to the wise or wealth to the brilliant or favor to the learned; but time and chance happen to them all.
PROVERBS 3:9
Honor the Lord with your wealth, with the first fruits of all your crops;
Want to ask a question about your specific situation? Schedule a complimentary 15 minute phone call.
SCHEDULE AN APPOINTMENTDid you enjoy this episode? Sign up for email updates and never miss an episode.
EPISODE TRANSCRIPT
Matthew (00:00):
Did you know that Einstein called compound interest the most powerful force in the universe? Whether you’re 25 or 55, understanding the simple math behind this wealth building could dramatically change your financial future. We’ll explore how time and consistency can transform modest savings into significant wealth, and why waiting or withdrawing can cost you way more than you think. Let’s get some perspective. Welcome to Christian Financial Perspectives. I am Matthew Barrovecchio, joined by Bob Barber, and today we’re going to talk about the power of compounding interest.
Bob (00:45):
A pretty exciting subject for me. As you know, I’m kind of a math nerd, and when I heard this as a kid, it started absorbing into my mind. But I’m really seeing the power of compounding now at my age of 62. So today is a great program for young and old alike, and I really want everyone to get in touch with this because compounding is extremely powerful and I’ve got some great scriptures to go with it. And then we’re going to quote some geniuses from the past too about what they said about compounding.
Matthew (01:23):
That’s great. There’s power in the name of Jesus, and there is power in compounding interest. So let’s take a look at what the word says here. So 2 Corinthians 9:6 says, “Remember this, whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.”
Bob (01:42):
What do you think of that scripture?
Matthew (01:43):
I mean, that’s a promise straight from the Lord, and it’s encouraging. It doesn’t necessarily mean that if we sow monetarily, we will reap monetarily. It doesn’t mean that if we sow in this lifetime, we will reap in this lifetime, but we have an eternal perspective.
Bob (02:00):
But there is a scriptural principle behind sowing and reaping.
Matthew (02:04):
Absolutely.
Bob (02:04):
It’s very clear in this scripture.
Matthew (02:06):
Proverbs 14:24 says, “The wealth of the wise is their crown, but folly of fools yields folly.” It’s a tongue twister.
Bob (02:19):
Okay. So as you look at this and you think about this, this will make a lot more sense as we get into the compounding and how the wealth of the wise is their crown. The wise, there’s wisdom in compounding. This’ll make sense. You just got to stick with me on this, all right.
Matthew (02:35):
Let’s do it. Ecclesiastes, a lot of wisdom in this book, 9:11, “I have seen something else under the sun. The race is not to the swift or the battle to the strong, nor does the food come to the wise or the wealth to the brilliance or favor to the learned, but time and chance happen to them all.”
Bob (02:56):
A key word, okay, time. In Ecclesiastes, it talks about there’s a time for everything. It’s not always about now, it’s about the future. And then Proverbs 3:9, “Honor the Lord with your wealth, with the first fruit of all your crops.” So as we’re talking about compounding, we’re talking about honoring God with that as well. Now, I’m going to make a switch, and we’re going to look at some worldly men, and one of them is Albert Einstein. Ever heard of Albert Einstein?
Matthew (03:31):
His hair is different than mine.
Bob (03:34):
His hair is very different…
Matthew (03:35):
Very different than mine. We did not go to the same barber, no pun intended, Bob Barber.
Bob (03:41):
That is true. It’s interesting that he’s a brilliant man. Many people knew him as a brilliant man. He said one of the most powerful forces in the universe is compound interest. And he referred to it as one of the greatest miracles known to man.
Matthew (03:57):
Miracles around us. That’s great.
Bob (03:58):
And then Benjamin Franklin, what a hoot he was. And he was fascinated by it. And he built this legacy. He left just $4,000, which was a lot back then. He left it in a trust for Boston and Philadelphia. Later, that turned from 4,000 to six and a half million dollars. That’s compounding.
Matthew (04:20):
Didn’t you tell me the other day that he was intentional within the trust to make sure that it couldn’t be touched for like a hundred years or something?
Bob (04:27):
Yes, exactly. Yep. He sure was. And then who’s the modern day, the modern day financial guru that we were thinking in the worldly sense?
Matthew (04:35):
Shawn Peters? No, not him.
Bob (04:38):
Warren Buffett. Yeah, Warren Buffett, yeah. And one of the three things he said that wealth has been a combination for him of living in America, some lucky guesses and genes in compound interest. So we’ve got scriptures that show sowing and reaping and wisdom. And then we’ve got some very smart worldly men as well that says compound interest is amazing. And it is, and it really comes down into the rule of 72.
Matthew (05:06):
What is that? Yeah, tell me.
Bob (05:09):
Tell you, huh? You know what the rule of 72 is?
Matthew (05:11):
I do.
Bob (05:12):
But okay. So the rule of 72 is a mathematical rule that when I learned it in school, I thought, man, this is really cool. People think, man, you are a math nerd. But the answer is, if you take a certain rate of return and you plug it into the number 72, and then that will tell you how long it takes for a dollar to double to $2 or 100,000 to double to 200,000 or a million to double to a 2 million. What’s interesting in all of these scenarios is a dollar to double to $2, it takes the same amount of time at a stated rate of return as it takes for a million to double to 2 million. That’s the power of what I see in the rule of 72’s. And you got to understand the rule of 72’s to understand compounding and how that works. So always in my head, I can go 2, 4, 8, 16, 32, 64, 128, 256, I double this because that’s the way my mind thinks about math. But let’s just assume a reasonable kind of, maybe a moderate to growth portfolio, 7% return.
Matthew (06:34):
Over a long period of time.
Bob (06:35):
Right? Yep. So 7 goes into 72 about 10 times, right?
Matthew (06:39):
A little less, but yeah.
Bob (06:40):
So yeah, it’s actually…
Matthew (06:43):
A little more rather.
Bob (06:44):
It’s what?
Matthew (06:45):
A little more than 10? A little more than 10.
Bob (06:47):
Yeah. But it’s like 10.2. Okay. We can get technical here, of course, but at 10 years it’s saying if you have a stated amount of money and you don’t touch it, you don’t withdraw. Just leave it there. It’s going to double.
Matthew (07:01):
Yeah. So the don’t touch it piece and the time aspect is really important because what could happen, and we’ve seen this in investment principles across in our careers and in our experience of stewarding people, but let’s take the concept and apply it to this is, okay, compounding interest is going to work over the course of say, a 40 year career, but a couple years into it, if it’s not working out exactly how one thought it would, they abandoned the strategy, they abandoned the principle. And that’s exactly the opposite of what we want to do. You want to stay steadfast, trust the math, trust the process, and focus on the long-term is a good recipe for success in this.
Bob (07:47):
So I think you have a real good example of this that you’re going to go into in a minute. But yeah, it is so hard to think about compounding. Cause the time and when you’re in your younger years, you can get so easily sidetracked of all the things that are hitting you right now. So it takes a lot of discipline. But discipline is how wealth is obtained by discipline and doing the same thing and being very consistent in your life and following those biblical principles.
Matthew (08:14):
There can be a lot of distractions, including financial FOMO, which we’ve talked about a podcast before. And so we want to stay steadfast. All right, so let’s take a look at an example. If we assume 7%, which for a moderate portfolio, stocks, bonds, mixture over the course of a 40 year career, it’s reasonable roughly, Investor A invests 3000 every single year for the first 10 years of their career. And then starting in year 11, invests no more, right? So the 30 years after, they don’t invest anything.
Bob (08:52):
So they put $30,000.
Matthew (08:53):
30,000 in.
Bob (08:54):
3000 a year.
Matthew (08:55):
Three grand in for 10 years, and then just allow that to continue compounding interest.
Bob (09:00):
Not putting another penny in?
Matthew (09:01):
Nothing else. Okay. Alright. Investor B does the exact opposite. They don’t do anything for the first 10 years starting in year 11. For year 11 through year 40, they do the same $3,000 each year. Who do you think has more money at the end?
Bob (09:17):
Well, I think investor B would, wouldn’t he? Because he’s been investing for 30 years versus 10 for the first one.
Matthew (09:26):
Yep. So many people would think that, but that’s obviously based on…
Bob (09:30):
I knew that’s not the case.
Matthew (09:33):
So at the end of the 30 year career, you have investor A who has about 30,000 – 35,000 more dollars in this example than Investor B. Again, while they only invested 30,000 of their assets versus investor B who invested a total of 90,000.
Bob (09:52):
Oh, okay. So the Investor B had to invest three times the amount to get to the same. Oh, actually he had less.
Matthew (10:00):
He had about 30,000 – 35,000 less. So again, investing early and investing often and staying disciplined to the plan is really this key to success with compounding interest. And so for our younger investors, hey, every little bit counts. So it can be very powerful over the course of your lifetime.
Bob (10:23):
But there are two things that can really hurt the compounding effect.
Matthew (10:28):
Kind of just spoke about the first one. What are they?
Bob (10:30):
Well, number one is, yeah, you did speak of it. The cost of waiting, because the younger you are, the more time is on your side and waiting is tremendously costly. I want to explain something real quick too here that you didn’t share an example, but I’m going to give an example is that at my age, 62, we meet a lot of investors. I mean, they’ve been investing in a 401k, they’ve been getting a match, and they retire and they have a million dollars and they’ve been consistent, 30 years they’ve been investing. It’s possible, very possible today, and it happens all the time. So they have a million dollars. So you realize if they don’t touch that million for six or seven, eight years, it’s going to double or 10 million. And we can’t say for sure. But we say it can. Right? And it has in the past. So when I look at this and think about the cost of waiting, I look at the cost of waiting as taking a million and it going to 2 million, and that person that’s waiting to save $200 or $300 a month,
(11:45):
That’s what they’re waiting. You can get that just from not buying an expensive coffee every day. Or you can get half of that and then your employer’s going to match the other half with the 401k match. That’s costing them $7,777 a month. And all I’ve done is taken a million and divided it by 10 years, divided it by the month, bought it all the way down 7,000. So for every month you wait to save $200 or $300, it’s costing you $7,000…
Matthew (12:18):
Wow. That’s pretty powerful.
Bob (12:21):
…Later down the road. That’s very, very powerful. The second example I see that blows compounding is the cost of withdrawing to go buy a depreciating asset like a car. I mean, a car today costs $50,000, a nice one, 40-50k. You buy one of those trucks we drive right here in Texas, you’re talking 80,000 to 100,000, but let’s say $50,000. When you are withdrawing $50,000 from a portfolio, now you’ve taken that part that can no longer, that 50 can no longer turn into a hundred, turned into 200, let’s say over a 20 year period. And I always like to ask the question, if you buy a $50,000 car today, you’ve hurt your portfolio by $200,000 in the next 20 years, what’s the car going to be worth in 20 years? Or the truck?
Matthew (13:18):
Right. Very little.
Bob (13:19):
Very little. It’s 20 years. It’s probably in the, where they take cars when they die. I dunno that much about all that, but that’s probably what it is. The power of compounding is just simple math, right?
Matthew (13:36):
That’s it. Very simple.
Bob (13:37):
If you can understand this concept, I will say at 62 years old, and I’ve been disciplined, it kind of blows my mind every day to see what’s happening, to see how it was just so small amount that was doubling at first, but now it’s getting bigger and bigger. If you put it on a graph, if you’re listening to the podcast, you can’t see this, you’re on YouTube, it just kind of goes like this. It feels like it’s going straight up.
Matthew (14:06):
It’s the momentum.
Bob (14:07):
It’s the momentum. The momentum is building so strong. And I think that’s why you ever heard the term the rich get richer?
Matthew (14:15):
Of course.
Bob (14:15):
Yeah.
Matthew (14:16):
And again, it’s very simple, but it’s very powerful and it’s staying disciplined to and focused on that. And like we said earlier, not getting distracted.
Bob (14:24):
Yeah, exactly. Well, that’s going to do it for today for our program on Christian Financial Perspectives. I hope you’ve learned about compounding and the Rule of 72s, probably might be the first time you’ve ever heard this before, but if you’d like to give us a call.
Matthew (14:37):
Yeah. So if you want to hear more about how compounding can help your situation or apply to your situation, call us or text us at (830) 609-6986 or visit us online at our website, www.ChristianFinancialAdvisors.com. God bless you, and we’ll see you soon.
[DISCLOSURES]
* Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.
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