The Power of Compound Growth
The Power of Compound Growth
Imagine a pond, which has a limited carrying capacity. It only has enough food, water and air to hold a certain number of species.
Imagine a lily pad in this pond that doubles in size every day. How long until the entire pond is covered in plants?
The magic of compound interest
Compound interest doesn’t just work with money (as discussed in chapter 3), but it demonstrates how quickly anything can double. The lily pad illustration shows how growth can quickly get out of hand. Growing what seems like slowly and manageably can quickly cover the whole environment.
In only 8 days the pond becomes uninhabitable to not just the lily pads but also to other species in that pond. This shows the power of compound interest. Using GDP as a measure for growth is unsustainable and it is mathematically impossible to continue without destroying not just our planet but also our species.
This lily pad on the first few days can grow rapidly and the whole pond is not affected. On day four its halfway through the period but not half the pond is covered. The penultimate day that pond is half-covered.
This kind of growth is counterintuitive. It doesn’t make sense to humans as we often think in terms of cause and effect, however, it is not that simple. Until we have experienced compound growth ourselves, we can’t fully understand a concept. If we don’t understand something, then we will not act in the best interests of the whole planet.
Work out the growth of the pond each day using mathematics.
This calculation will be correct for each outcome using the scientific method first developed by Francis Bacon in 1620.
For the correct answer see the book Millennial Money Mindset: If you want the. fruits you need the roots.
Day 1
Day 2
Day 3
Day 4
Day 5
Day 6
Day 7
Day 8
It is not just about doubling. It is about how much the current number has increased compared with the last number.
For example, if a country grows at 8% GDP using the rule of 72 (explained in chapter 3), this means that a county’s GDP will double the amount it consumes every nine years. This will be measured as positive according to today’s measure GDP.
72/8% growth rate= 9 years to double
Even if the world grew at 3% a year, quite a few economists would consider this a global recession.
We need to look at what progress means and what we want to aim for.
If we consume more resources at the same rate, then there will be no more world to pass to our children and grandchildren.
The world is too focused on short term visions of GDP. Governments are worried about having two quarters of the year that is in negative growth of GDP, as this is the technical definition of a recession. Continuing to follow GDP is a losing battle.
What is Progress?
Progress is a forward movement towards a destination. The problem is we have no destination to head towards. No end in mind that we should aim for.
We should be improving or getting better than the day before, and leaving the world in a better place than how we found it. We need to invest in infrastructure that will benefit both us or our children and also our children's children and beyond. We need to look at the great civilisations of the past and learn from them. The renaissance periods of history which, due to expansion of knowledge, new ideas, and education combined, led to improvements to human collaboration, great architecture and an improvement in the quality of life for more people.
How do we know that we are moving forward? Hegel, (the German Philosopher), believed that progress is ultimately furthered by the person who is out of step with the majority. Only this person, the genuine non-conformist, really experiences freedom. This person who questions the current understanding of progress or happiness. This unhappy consciousness is the source of progress.
‘Machinery that gives us abundance has left us in want.
Our knowledge has become cynical.
Our cleverness hard and unkind. More than cleverness we need kindness and gentleness.
Without these qualities, life would be violent, and all will be lost.’
Charlie Chaplin, The Great Dictator (1940)
We need to head towards the United Nations Sustainable development goals. These are the 17 biggest problems that the world face today. The aim is to solve all these goals by the year 2030. This is a global blueprint for dignity, peace and prosperity for people and the planet, now and in the future. A blueprint to achieve a better and more sustainable future for all. (We should also add racial and ethnicity equality as an 18th UN goal).
We need to aim for these goals, rather than measuring companies on their GDP. GDP is a mathematically flawed metric. Let’s measure what is meaningful. Let’s measure how companies solve meaningful problems.
The 7 Habits of a Highly Effective World
These are 7 steps to take for a better world, which governments, businesses and individuals can adapt to their daily habits to make better decisions for the world. The model builds on Steven Covey’s 7 habits of highly effective people and uses the image of the extinction rebellion symbol of the hourglass to show that the time to act is running out. The symbol has been called this generation’s peace sign.
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There are 7 habits in this model and they move through three stages of the model, which are: 1) dependence, 2) independence and 3) interdependence.
Dependence
We all start life as dependent on others. When we are born, we are attached to our mother’s umbilical cord, helpless and naked. No one in the world can survive without the help, assistance and guidance from others.
Independence
In the second stage, as we grow, learn and earn an income when we are an adult, we become more and more independent. We save, invest and build assets that will one day be enough to pay us an income to pay for our daily expenses. We become financially independent. In the old mindset, this was called retirement, where we exchanged the days worked for an income for life. Today we should aim for Financial Independence Seeking Happiness (FISH). At this stage, we are still consuming more natural resources than we are creating. We may be financially independent but we are still reliant on the planet to provide resources for us to consume.
Interdependence
In the 3rd stage of the model, we become interdependent. We have a renewed respect for the world we live in, a knowledge of the impact of our actions on the planet and an understanding that we can become creators and not only consumers. We can give back more than we take. Interdependence is much more difficult and complex than independence. It demands more creativity, more intelligence and more compassion. It requires a huge amount of self-ownership, internal security and creative cooperation. At this stage, we come full circle and are dependent on others again. Working in synergy with others you focus on your strengths and acknowledge your weaknesses. Thinking cooperatively, helping others and being happy for others success, then your success will follow naturally.
Getting financially independent using the three rules of money. Own yourself first, diversify and Re:Balance.
1)We need to own ourselves first.
We all need to, first of all, take responsibility for our actions. Whether we know it or not our actions have consequences.
We need to own ourselves first. Be the change you want to see in the world.
We need to stop linking consumption with status. We should be made to feel important for who we are and what we have achieved rather than the stuff we have bought.
Companies must leave no trace. Taking nothing away but problems. Companies need to take ownership of the lifecycle of their products.
We also need to be proactive rather than reactive. Be an owner, not a consumer. Either you are producing, or you are consuming. Are you adding value? Buying shares in companies means you become an owner. Helping businesses to expand and more jobs to be created. Too many people are focused on how much return they can get from the market. How much they can take whilst giving the least. This is unsustainable. When you lend money to a company or government or when you pay money for a share in a company you are giving money that will be better used. That will help more people or solve more problems. We have become disconnected from this fact.
Aiming to be net-zero. To give more than you take. To produce more than you consume. To give only memories and leave only footprints in the soil.
Being responsible and investing in companies that produce progress, not just profits.
2 Diversify
Diversification of not just of financial assets but biodiversity assets or natural capital. Relying on one or two species for food is a disaster waiting to happen. Having a wide variety of species will only benefit humans. The lack of biodiversity is worrying. We need to rebalance not just with our money but the world, aiming for a more biodiverse world.
We also need to have a diversity of people too. We need to have a diversity of gender, race and religion. The more diversified a population of ideas, beliefs and people, the stronger it will become.
We need to start with this diversity in mind as we take a bold step forward into our future.
3 Re: Balance
Rebalance not just our portfolios but the world. Rebalance to bring back the natural balance of land use. E.O. Wilson recommends that the earth returns to forest and wilderness. He recommends 50% of the earth’s surface be rebalanced, rewilded and returned to its natural environment. Returning the land to forests and natural landscapes rather than farmland for food would solve many of the environmental problems. Understanding the importance of creating long term assets rather than short term trading.
4 Think win/win/win
Businesses need not just make a profit; they need to solve meaningful problems and they need to contribute to the enhancement of the world.
Not just a win for the company making a profit or win/win for the company and the customer. But win/win/win. Win for business and win for the customer, and also win for the planet.
5 Seek first to understand then be understood
Seek first to understand before making a decision. We need to look at the evidence when making decisions about both global decisions about the planet and investing Like a court case looking at all the evidence and making an objective, rational decision with the facts in front of you and checking and debating with others to find the closest answer to the truth. Government policies and laws need to use science to guide their decisions. Thinking long terms and using evidence-based research, which has been peer-reviewed (meaning it has been sense checked by others who have knowledge, experience and understanding in that area) is important in getting to the truth.
6 Synergise
Synergy is working with others to form a team. Strengthening your strengths and getting help from others to make up for your weaknesses. Understanding that we are all unique, original and everyone has both strengths and weaknesses.
The challenge is to apply the principles of creative cooperation, which we learn from nature to our social interactions and our investments. The essence of synergy is to value each other’s differences. To respect them and build on our strengths to compensate for our weaknesses. If we are to be successful we must work as a team. Just as business is a team sport so is working with other countries and other stakeholders to create the best solutions for the future.
7 Kaizen (Continuous Improvement)
Kaizen is a Japanese concept that means change for the better. It aims to continuously improve the way that processes are carried out. Every day getting better. Asking ourselves not what the right way is but what is the best way today, and continuously looking for a better way tomorrow. The Kaizen circle is the emblem of the universe as well as representing an egg. The egg is a symbol of life as all life emerges from it. The egg gives the idea of rebirth and rejuvenation in the cycle of life, reflected also in its shape, that has doesn’t have a beginning or end. The cracks in an egg show how fragile life can be, reflecting the cracks in the earth showing how fragile the planet is. Showing that we need to create a holistic and sustainable economy rather than an economy built on forever growth. It is not looking to create a utopia where everything is perfect but to create a protopia where things are better tomorrow than they are today. Kaizen is a continuous improvement.
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If you want to get closer to Financial Independence and Retire Early (FIRE) get your copy today on Amazon by clicking the link in the comments.
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