A reasonable amount has been written and said about the Queen in recent weeks and that’s appropriate given her pivotal position in Britain’s sense of identity. I have nothing original or inspiring to add about the former monarch, but I have been thinking about staying power, longevity and the power of time.
One of the biggest issues with saving and investing is knowing how long you’re going to live. When you're young you can't conceive of being old or living until you're 100.
Uncertain life expectancy
Retirement planning would be so much easier if you had a fixed date to work with (or even a ballpark figure). Life expectancy figures, genetics, luck (good and bad), illness and wealth are all powerful variables that actuaries blend together.
You could live for the average life expectancy (currently 83.8 years in Australia). In this context, starting investing at say 21 when you leave study – if that’s the path you’ve chosen – you could have 60+ years to build a retirement portfolio and other assets. Living longer is ideal for many reasons, in that your loved ones get to spend more time with you (my grandparents, who were born two years before the Queen, received a message from her on their platinum wedding anniversary and met their great-grandchildren).
Illness and poor health later in life is the obvious drawback to living longer, especially if that carefully accumulated capital has to be plundered to fund health and social care. We had news recently that French film director Jean-Luc Godard, died at the age of 91 through assisted suicide in Switzerland after battling multiple illnesses.
The Queen (and her mother, who made it to 101) were outliers for her generation in terms of age but her father, George VI, died age 56. Death makes fools of statisticians and actuaries: how can you plan for a difference of around 50 years in lifespan? The royals naturally have less to worry about financial planning than most people.
Saving by saving and how it works
Let's look at the maths of saving. Compound interest is powerful, especially over a multi-decade time period of 50 years plus. People tend to underestimate the impact of reinvested interest. Look at how much of an impact the price of a coffee can make, if you invested it instead. If you're spending $3 a day on coffee, that's roughly $90 a month. If invested with an average return of 6% a year for 40 years, that would create $178,252 for your future self.
The below table shows how our savings would accumulate if you started with $100 in your savings account and added an extra $100 at the end of every year.
|
Interest rate
|
1 Year
|
5 Years
|
10 Years
|
15 Years
|
20 Years
|
30 Years
|
50 Years
|
70 Years
|
|
3%
|
203
|
647
|
1,281
|
2,016
|
2,868
|
5,000
|
11,718
|
23,851
|
|
5%
|
205
|
680
|
1,421
|
2,366
|
3,572
|
7,076
|
22,082
|
61,895
|
|
7%
|
207
|
715
|
1,578
|
2,789
|
4,487
|
10,207
|
43,599
|
172,812
|
|
10%
|
210
|
772
|
1,853
|
3,595
|
6,400
|
18,194
|
128,130
|
867,722
|
|
15%
|
215
|
875
|
2,435
|
5,572
|
11,881
|
50,096
|
830,137
|
13,596,719
|
|
20%
|
220
|
993
|
3,215
|
8,744
|
22,503
|
141,926
|
5,459,763
|
209,332,874
|
Even if your savings only provide a 3% interest on an annualised basis, in 30 years, you’ll have $5,000 in your account. Without interest, you’d have $3,100 set aside. Of course, these are future dollars, not adjusted for inflation.
If you did save for the length of the Queen’s reign, an astonishing 70 years, that’s $23,851 at 3%. If the annualised return is upped to 5%, your account will jump to $61,895. And, if in the probably unlikely scenario that you are Warren Buffett, earning 20% annually but still only investing $100 a year, over 70 years, you will have $209,332,874 in your savings. That's over two hundred million dollars. Even with the impact of inflation, taxes, fees, etc, that will be a lot of money.
Staying power
Apart from high-quality medical supervision, the Queen had relatively little control over her longevity. The nature of her role meant she would be monarch for the duration of her life. Politicians and even fund managers rarely have that much time to make an impact, given the harsh realities of commerce and governance, although asset manager abdrn Plc, Harry Nimmo, manager of a gold-rated UK smaller companies funds, retired from the firm after 38 years. Baillie Gifford’s James Anderson, famed for his role as Scottish Mortgage Trust manager (alongside Tom Slater), also spent a similar amount of time at the firm and built a similar legacy and loyal investor fan base.
While there’s a correlation between fund manager staying power and performance, the comparison with politicians could be unfair. Cabinet ministers and even the prime minister would no doubt like a 20 or 30 year run, but it’s expected that they have shorter shelf lives than money managers. Politicians don’t need to be an expert in their subject to become a secretary of state, and rarely do they stay long enough to make a significant impact.
You are not going to be the next monarch (unless Prince William is reading this), but what you may have – but don’t realise it yet – is time. The latest generation of investors, born in 2022, could easily make it to the Queen’s age and beyond. That means that even without generous parents investing on your behalf from day one, you could have a potential 50+ year run at the investing game.
Spend, spend, spend - or save, save, save
Even if you are financially fortunate enough to set aside funds for long-term investment each year, you will need money for education, property, children, holidays, health care, cars and more. The pandemic may have even engendered a 'what the hell' attitude among some savers – if a virus could take you off unexpectedly, why not spend and enjoy? At the opposite end of the spectrum is the FIRE (Financial Independence, Retire Early) movement, which requires self-sacrifices that most are unwilling or unable to make.
Poet Philip Larkin, who died at the age of 63, was right about our inability to think beyond the everyday and comprehend glacial time:
“We're not suited to the long perspectives / Open at each instant of our lives.”
Still, times like these allow people to reflect on longevity and contemplate 'long perspectives'. From the Queen’s birth in 1926, the S&P 500 has returned an average of double digits per annum with dividends reinvested, and that stretch has included the Great Depression, World War 2, the oil crisis, the fall of the Soviet empire, 9/11 and GFC and a pandemic.
James Gard is Senior Editor for Morningstar.co.uk. This article is general information and does not consider the circumstances of any investor. Minor modifications have been made for an Australian audience.
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