Spring in Iowa is always a welcome turn of the calendar. Our thoughts turn to flowers and gardens, as well as favorite warm weather pastimes like bicycling, golf, and barbecues. Indeed, there’s a lot to look forward to after a winter of hibernation.
SPRING AND ITS EMERGING SIGNS OF LIFE ARE GREAT REMINDERS OF HOW MANY THINGS IN OUR LIVES START SMALL. BUT WITH A LITTLE ATTENTION YEAR AFTER YEAR, SMALL THINGS CAN GROW TO BECOME MEANINGFUL AND ENJOYABLE CONTRIBUTIONS TO OUR LIVES AND THE LIVES OF OTHERS.
LANDSCAPING, LITTLE BY LITTLE
Late last summer (after 23 years in a house we began building in 1999), my wife and I moved to a different home – not brand new, but new to us. The new place is great, but leaving the old house proved to be more bittersweet than we might have imagined. As I looked around our old yard, I noticed the row of flowering crabapple trees along the back fence that we planted as saplings years earlier. They are now 20-feet tall and eye-catching in the spring, when their deep rose-colored flowers burst into color.
These trees and other landscaping features were the result of 23 years of yardwork and hard work (mostly by my wife!) and a lot of feeding, watering, minor pruning, and patiently waiting as they grew up around us. Each plant started very small, but with the passing of years became things we enjoyed season after season.
SMALL BEGINNINGS AND THE MIRACLE OF COMPOUNDING ARE EVERYWHERE.
It’s easy to see now that the growth we enjoyed through the years – both the trees and the landscaping – were living examples of compound growth. Even as we planted new things, each year, the trees and perennials planted in previous years continued to grow – with new buds, shoots and branches adding to the landscape, season after season. Most people think of compounding as a financial investment concept because that is where we hear about it most often, referring to investment growth on each previous period’s investment growth. To compound is to earn interest on interest, growth on growth, not just on our previous investments.
“UNDERSTANDING BOTH THE POWER OF COMPOUND INTEREST AND THE DIFFICULTY OF GETTING IT IS THE HEART AND SOUL OF UNDERSTANDING A LOT OF THINGS.” CHARLIE MUNGER
Even as a seasoned (older) investment professional, it’s easy to forget how this idea of small beginnings compounded over time can create unexpected, almost magical outcomes.
COMPOUNDING IN ACTION
My wife and I recently opened 529 educational investment accounts for our eight grandchildren (I did say I was seasoned). While we don’t expect these investments to fund four years of Ivy League education, we do contribute a little to each child’s account on their birthdays and at Christmas. Last December, as I was making our most recent contributions, I looked at our oldest granddaughter’s account. She is now six. Seeing the growth that occurred in just 72 months confirmed for me the power of compound interest coupled with regular, relatively small contributions.
As humans, we have a difficult time envisioning the geometric growth of compounding. But as Albert Einstein is purported to have said, “Compound interest is the eighth wonder of the world.”
Compounding is a principle of the universe that applies to more than investing. Charlie Munger, who died last November, just two months shy of his 100th birthday, was Warren Buffett’s business and investment partner for decades. Many regard Munger as one of the wisest investors of all time. But his wit and wisdom went far beyond investing. He was a voracious reader and had a capacity for understanding scientific and psychological research.
A marriage counselor once reminded my wife and me that growth in most every aspect of life on earth (e.g. trees) is a slow, often indiscernible process. The counselor said that growth in a marriage relationship was subject to that same principle. No matter how small or seemingly insignificant the start, with regular attention and patience the results can be startlingly good. After 40 years of marriage, we can attest that small practices – from consistent words of encouragement to regular dates and periodic vacations – compound over many years to maintain and grow a relationship.
WHAT SMALL START DO YOU WANT TO MAKE?
Or what have you started in the past that needs a little tending, pruning, or supplementing to keep the growth compounding for years to come?
I’ve mentioned how we started small college savings accounts for grandchildren that have compounded these past six years, as well as how investing in our marriage relationship over the years has borne fruit.
I have a co-worker who began to take short jogs to prepare for his first 5K, then discovered that he enjoyed running. Now, years later he runs much longer distances and enjoys the way it makes him feel.
I know of people who took a few cooking lessons and discovered the joy of preparing food and entertaining others. Over time, they became accomplished chefs and hospitality experts who love sharing the fruits of their growing skill with friends and family.
Pick up a musical instrument, take a few lessons, and see if you enjoy the practice of producing music alone or with others. Start a collection of art with one small but meaningful find. Make initial small charitable gifts to causes you care about or volunteer a few hours of time to grow your engagement.
THE SECRET IS TO MAKE A START. NO MATTER HOW SMALL. COMPOUND INTEREST DOESN’T JUST ADD UP, IT MULTIPLIES.
This spring, let’s agree to not belittle what may seem like small beginnings or contributions. As my wise counselor friend observed, growth occurs most often in small, almost indiscernible changes that compound over many years to produce surprisingly significant outcomes.
For myself, I think I’ll plant some new crabapple saplings as soon as I can get a spade in the dirt.
Kent Kramer is Foster Group’s Chief Investment Officer, as well as a Shareholder and Board Member at Foster Group.