Principle 3: Time really is money

[dropcap background=”” color=”” circle=”0″]T[/dropcap]ime is of the essence. Time is golden. The concept of time as man’s most priceless asset has been around since the days of our earliest ancestors. But Investing-in-Asia expert and financial literacy advocate Andrew Stotz’s take is more direct: Time is money.

The good news is that many investors still have plenty of it, enabling them to take advantage of longer-term retirement investing strategies. For younger market participants, the decades left prior to reaching 60–65 years old are to our distinct advantage. There is so much to gain with a longer investment horizon. Still, for those who have started later in their lives, prudent investing is still a powerful ally as long as you have realistic expectations and extra money to allocate.

Mr. Stotz was all about the magic of compounding when I listened to his energetic talk last week in Manila, Philippines. Had I understood the principles he spoke about earlier, I would have never let a single paycheck vanish without setting a portion aside for mutual funds and ETFs (in some countries, like the Philippines, there are UITFs, an investment vehicle similar to ETFs). While I regret all the missed opportunities that have passed since my very first paycheck in 2010, the enthusiasm Mr. Stotz expressed to people my age was inspiring. Via a chart, Mr. Stotz clearly showed how compounding (i.e., earning interest on interest) could work wonders 10–30 years down the road.

Mr. Stotz was clear: The only sure-fire way to get rich is through compounding—but that it often takes around 30 years. It could take a lot longer. However, if we start now, our future selves will thank us for the secure financial foundation we have built. I also found his advice on reinvesting earned dividends and avoiding the temptation of claiming them and cashing them out for unnecessary expenses to be particularly useful when one considers how powerful these dividends are when left to compound over time.

Another important thing to consider is that advancing medical technology has heralded the creation of several cures, vaccines and procedures that could help us all long live longer than expected. Modern medicine is improving, and we should now take into consideration how long we think we will live amid all these advancements. If we have a projection, we can make better decisions as to how we will invest.

Over the past four decades the life expectancy in the world has increased from 61 to 71 years. If this trend continues, 40 years from now, today’s 71-year life expectancy will be 83 years. Powerful stuff and crucial when needing to plan for the future realities that have very little to do with current realities and data:

Danielle covered the three-day university tour of Andrew Stotz in the Philippines from October 2 to 4, 2014. She will discuss each of Andrew’s 12 investment principles from her perspective. All articles will be posted here on www.andrewstotz.com.