PAYING THE PIPER
There's an elephant in the room with long-term investing.
(Fixed Income Portfolio Manager)
You are never too young to start a nest egg, ‘there is no excuse for not saving’, ‘how much is enough to retire on?', 'only 6 per cent of South Africans save enough for retirement', ‘spending less is not saving’. We have heard and seen it all in newspapers, magazines and even on TV (ad nauseum).
At face value, these commonly heard statements appear to have merit. The figure below shows the indexed performance of then Dow Jones industrial average from 30 June 1916 to present−quite a bit of data there. This highlights that if you had invested one unit of capital 100 years ago and reinvested all dividends, it would be worth 1 242.72 units of capital today. Saving appears to pay off rather well.
That is 1 242 times your original money, so the argument goes that if you had decided to spend that one unit of capital 100 years ago you would forgo 1 242 units of capital today, which sounds like a no-brainer: sacrifice your current one unit of capital consumption to be able to consume 1 242 units of capital in the future.
It is not exactly squirrelling away nuts for the winter: it would appear that those nuts that you buried a few summers ago, sprouted, grew into trees, created more nuts, which fell off the trees, sprouted, grew into trees, repeated and so forth. The nuts would have multiplied to such an extent that you wouldn’t know what to
do with them all.
How many nuts are you able to actually consume? Saving seems such an easy game.