The human mind cannot comprehend the power of compounding.
Imagine that you retired in 1985 with $100,000 and a paid off home.
You invested this $100,000 in S&P 500 mutual fund at the end of 1985.
You lived off dividends, Social Security and enjoyed your money.
You spent the dividends, but kept the portfolio invested.
The first year, you generate almost $4,000 in annual dividend income.
This year you are on track to generate over $37,000 in annual dividend income.
You die in 2025 with a portfolio worth $3.2 Million.
97% of that gain in net worth occured in the past 40 years of your life.
You lived a full life, enjoying retirement as well.
If you didn't have anyone to inherit from you, you'd likely be one of those who make headlines for donating millions to charity.
If you do have kids/grandkids, they'd receive a decent inheritance to provide some added cushion.
Ironically, any time I post something like this, someone would state that "they didn't enjoy their money".
This comes from the misunderstanding of compounding, and nature of long-term stock returns.
To put it simply, this individual sees that someone has $3.2 Million at the end, and they now assume that this money was always there, they always had $3.2 Million so in their mind "they should've spent more".
Of course, that person did not have that $3.2 Million until the end of their journey.
If they had "spent more" when they retired in 1985, they'd have run out of money by the late 1980s/early 1990s and would've nothing to show for it.
The reality is that this person enjoyed life, being in charge of their schedule, living in their paid off home, receiving Social Security checks and rising dividend income. Perhaps they even received a corporate pension, but I am not including it, as not many folks today have that (I guess less today than historically speaking).
This basically gets to the point that to most people, having $1 Million means spending $1 Million, which is the opposite of having $1 Million.
To smart investors however, having $1 Million means having a small army of dollar soldiers who work tirelessly for you, 24/7, which provide the income to enjoy your life so you don't have to work. That money provides freedom and piece of mind.
Anywho, this is a fun thought exercise I go through from time to time.
Or as I like to say " I often think about that".
