Time Grows Hair and Millionaires.
Time and time again, I have received what I think of as a milestone haircut from my barber, Mark Rathke (owner-barber of Mark’s Styles & More in Coralville, IA.) I first met Mark when I was a college student looking for a high and tight haircut. He was cutting hair in a barbershop that was owned by two other guys. Since that time, he has given me my:
“College Graduation Haircut”
“You’re Starting Your Career as a Finance Professional Haircut”
“You’re Getting Married This Weekend Haircut”
“MBA Haircut”
“You’re Going to be a Dad Haircut”
“You’re Going to be a Dad Again Haircut”
“It’s Another Girl Haircut” (The list goes on and on.)
Photo by Brent Pritchard.
After my most recent haircut, which was deserving of a tip and maybe even the name of this post, we were talking about my book. He was sharing his thoughts with me about how it can help even the non-finance person gain more financial literacy. “Walk into any investment advisor’s office,” I said “and ask them what they think is the number one topic related to finance and money. There’s no question about this question,” I said. “It’s the Time Value of Money!”
Here’s an excerpt from my book Would Your Boomerang Return? What Birds, Hurdlers, and Boomerangs Can Teach Us About the Time Value of Money (2023):
Time is something you want on your side. That’s one of the best ways I’ve come to summarize the Time Value of Money. In the Preface, I said that I have a few regrets. One of those is not executing on this idea I had when our daughters were born, which was to save $1,000 on each date of birth and each annual celebration thereafter through and including their 18th birthdays. Assuming a true annual investment yield of 10%, each of these annual investments would have been expected to grow to $1,739,611 by the time each of our daughters turns fifty-five and $4,512,103 at the age of sixty-five. (I guess I have some books to sell…)
Like these numbers? Then keep on reading! Don’t worry if you don’t know how to calculate Future Value at this point. This book, in particular Part 2, will help you with that. These numbers obviously don’t consider ups and downs in the markets; here our focus is simply on the Mathematics of Finance. Did you pick up on the fact that we’re only talking about nineteen annual deposits of $1,000! In the absence of this investment strategy and assuming the same true annual investment yield of 10%, if one were to invest $1,000 annually starting on their twenty-third birthday and continuing through and including their fifty-fifth birthday, they would expect to have an investment with a balance of $222,252. Adding ten more years of annual deposits of $1,000 the savings would be expected to grow to $592,401 by their sixty-fifth birthday. That’s a far cry from $1,739,611 and $4,512,103, respectively. It is estimated to take thirty-three annual deposits of $7,827.22 from one’s twenty-third birthday to fifty-fifth birthday or forty-three annual deposits of $7,616.64 from one’s twenty-third birthday to sixty-fifth birthday to expect to accumulate $1,739,611 or $4,512,103, respectively. Again, this is assuming a true annual investment yield of 10%. Move over birthday gifts that collect dust and take up room in a corner...show me the birthday money! See what I mean by wanting time on your side?
By delaying consumption and investing in the future, you have the potential to change your family tree and provide a legacy for not only your children but their children’s children and beyond. Let’s go back to the example that contemplates nineteen annual deposits of $1,000. You’ll want to know how much that would be expected to grow to over a total investment period that includes seventy-five years. That number would be $11,703,233. Still not enough? Are you sitting down? After a total investment period that includes eighty-five years, this investment strategy would be expected to have a future value of $30,355,174. Now that’s a nice nest egg!
Anyone who has the ability to earn money needs to realize that there is no question that you can become a millionaire.
The question isn't “Where should I invest my money?” as much as it is “Who in my life would benefit from learning about the simple most important topic related to finance and money, and the potential for an investment portfolio to snowball by simply investing early and often?”
Brent Pritchard is an author and college finance lecturer with over two decades of industry experience and cofounder of Boxholm Press, LLC, a family-owned-and-operated publishing company providing educational content, products, and services. He pioneers an innovative and approachable new way of learning and teaching the Time Value of Money as well as thought leadership in other business topics. His most recent book is Would Your Boomerang Return? You can contact him on his website here.