Two and two are four
Four and four are eight
Eight and eight are sixteen
Sixteen and sixteen are thirty-two
Inchworm, inchworm
Measuring the marigold
You and your arithmetic
You’ll probably go far
Inchworm, inchworm
Measuring the marigold
Seems to me you’d stop and see
How beautiful they are

From Benford’s Law and Fibonacci numbers to Inch Worm in a couple days, where will this blog go next?

There’s a chance I’m being revisionist, but I think Inch Worm started me on my investing path. When I discovered that if I kept doubling I soon got to 1000 (1024 to be exact) and as that was one thousand, I therefore knew the entire doubling number series up to the largest number I knew, 500 trillion in 49 doubles. 1,2,4,8,16,32,64,128,256,512 five times over.

The last double was always the most interesting to me. That final iteration doubled all the previous doubles, no matter how long I had been doubling. Starting at 1 it takes nine doubles to get to 512, while the next iteration by itself would add 512 more. One double doing the same as all nine doubles before it. That seemed phenomenal to me and it was that final double that I decided to focus on.

From one thousand it took nine doubles to get to a half million, that’s nineteen doubles in total and then only one more iteration to double all that and get a million. One final double did the same work as nineteen doubles before it. I lay in bed doubling even higher. Nine more doubles and I was at a half billion with a final double adding another half billion. The final double doing the work of 29 doubles before it.

30 doubles to get from $1 dollar to $1billion dollars, but only ten doubles if you start with $1 million.

The Magic Law of 72 (70) which I didn’t learn until much later tells me at 15% things double every 4.8 years. Let’s call it five years. So ten doubles will take fifty years. Perhaps a more realistic question for most people  is how long will it take to have a million dollar portfolio. See below for a real life example.

The second theme in Inch Worm is “Seems to me you’d stop and see How beautiful they are”. You should enjoy the journey as much as the destination. Rather than wanting, enjoy what you have now. Celebrate the good things in your life. The less you want the more you’ll enjoy what you have.

Real Life Example

If you save $500 a month inflation adjusted by 4% and earn 10% then the chart and table below show how your wealth will initially inch forward. Notice how it takes to the ninth year before the income earnt from your portfolio overtakes your contribution from savings. That is the killer! Most people look at the first year, some people think they’re looking forward and think about after five years.

If you want to achieve a self supported retirement rather than being a financial burden on a diminishing amount of younger people then you need to think at least fifteen years ahead. Do you want to rely on Gen Y or Z supporting you? From the point of starting to think about obtaining financial independence and achieving it takes around 15 years. If you can do it faster then well done, but most people will take 15 years.

Two Charts and a Table

The first chart shows the path to $1 million based on the above $500 a month, notice the steepening of the curve in the second half. The reason for that is shown in the second chart. Once you get past the tenth year the income produced from your portfolio starts to outweigh your savings and quickly grows to dwarf your savings contributions.

Still reading? Wow, you must be keen. To say thanks, here is a simple retirement calculator. It’s in Google Docs, you can play with the inputs or save it to your own spreadsheet. Keep in mind real world returns carry considerable volatility.

Remember, it is starting that hard. The most important take away from this should be START SAVING AND INVESTING NOW, if you haven’t started already. The surest path to wealth is through time. If you start early then wealth becomes inevitable.

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