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Capital in Any Century

My last post was all about saving money because as the saying goes: “it’s not what you earn, but what you keep.” But let’s be honest here, it’s also what you earn. Unfortunately, (or fortunately depending on how you choose to look at it), I stumbled into a profession that offered a relatively high starting salary but provided limited earnings growth potential. Pair this with the fact that I’m like, really, truly, over retail pharmacy, one might expect that I’m pretty SOL in the earnings department. Luckily though, I am hoping my investments will provide a portion of my future earnings, assuming I get off my lazy duff and actually invest my savings.

But first, let’s hark back to a simpler time in 3rd year pharmacy school. An personal finance expert named Mike Sullivan had come to give our class a talk about the importance of investing once we were members of the professional class. To drive home the message, he darted his laser pointer around a PowerPoint slide demonstrating the power of compound interest. “If you start saving just $1000 per month for the next 40 years at an interest rate of 8%, by retirement you’ll have amassed a fortune of $3.5 million dollars!  And if the markets average a 12% during the next 40 years, you’ll have well over $10 million dollars!!”


Mike Sullivan, circa 2008

So we all signed up with him, started investing immediately and were well on our way to being decamillionaires by retirement. Oh, no wait, the year was 2008 and the worst financial crisis since the Great Depression happened just a few short months later.

I often wonder, late at night, about this so-called wealth adviser with the world’s worst timing. He’d had with such high hopes for the markets on that fateful February 2008 day.  Perhaps I could track him down and meet him for coffee.  We’d reflect on the other investments he’d likely advised over the years: a Miami condo in 2006, Greek bonds in 2010, going all in on gold in 2011.  We’d reminisce about his Bear Stearns and Nortel picks and recall him dismissing Google as just a fad. Mainly I’d ask what he was investing in now and immediately DO THE EXACT OPPOSITE.  Ultimately we’d part ways and he’d retire to his cardboard box under a bridge. Despite all of this, Mike Sullivan taught me something very valuable that day: markets rarely cooperate so I ought to double my savings rate and halve my expected rate of return.

Just for kicks though, let us imagine that I’d started investing in February 2008 as per Mike Sullivan’s suggestion.  What kind of meager return could I have expected given the market turmoil that occurred between then and now?  According to this S&P 500 Return Calculator, I’d have averaged 7.914%.  Oh, Mike, you lovable loser.  Turns out you were pretty much right after all.


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