Quiet Compounding
Naval Ravikant once said “All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.”
Let’s say you and your partner have a child, and you want to give them a jump start in life financially — so you open up a junior investment savings account to deposit £750 in per month from the day they are born. By the time that child turns 18, the JISA could be worth £450,422 — assuming a 10% growth rate.
Thinking about compound interest in terms of money is just the starting point. Imagine applying that same principle to your relationships.
Another good example of where compound interest is significantly at play is your reputation. Warren Buffet once said: “It takes years to build a reputation and seconds to destroy it.”
There is a question that all compound interest fanatics call the most important question to consider in your compounding journey which is: How long will it take for whatever I am doing to double?
In comes the Rule of 72. It’s a simple way to estimate how long it will take for your money to double. Just divide the number 72 by the annual interest rate you expect to earn, and you’ll have your answer. For instance, if you have $100,000 and earn a 10% return, it’ll double to $200,000 in just 7.2 years. Now again, let’s think about this beyond capital. Perhaps you’re in a relationship, and the 2x is marriage. So there’s your question — how long might it take for us to go from dating to married?
The reason I say this is that time and compound interest share an inextricable relationship. In order for you to get the benefits of compound interest, you need to invest time. So, time is the precious commodity, it’s the non-renewable resource because once its gone, its gone.
But there’s another piece to the compounding puzzle that is mentioned in the title of the episode. It might actually be more important than the concept of compounding itself, it’s the quiet part.
A recent study by Finder showed that almost half of Brits (46%) have £1,000 or less in savings, and a quarter of Brits (25%) have £200 or less. 1 in 6 UK adults have no savings at all, equating to around 8.7 million people.
Will Smith famously once said: We spend money that we do not have, on things we do not need, to impress people who do not care. Ultimately, this erodes our ability to fully harness the power of compound interest, at least from a financial standpoint.
One of the most valuable traits you can develop as an individual is a sense of indifference toward status, despite our human nature which leans into this game.
Status games are oppose the idea of quiet compounding and they should be avoided as much as possible. They are loud, flashy, expensive and costly. Status games are not more important than wealth creation games because they will not necessarily reward you with the ultimate goal of optionality — being able to do what you want, when you want to do it.
Quiet Compounding works in both directions, depending on what you are involved in — it can massively increase your upside or ruin you. It’s much easier to throw away the poor habit when its a brick instead of trying to knock it down when its a wall. My advice is when you find the right thing to do, when you find the right people to work with, invest deeply. Sticking with it for decades, behind closed doors, is really how you make the big returns in your relationships and in your money.
Where are you currently Quietly Compounding?
