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Exploring time compression, activation energy, and altered perspectives
Logan
January 23, 2025
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Exploring time compression, activation energy, and altered perspectives
Happy Thursday! Thanks for reading Intentional Dollar — where we look at old money ideas through a new perspective.
What’s inside?
One tool to experiment with
Two quotes from others
Three questions to dig deeper
Four lines of poetry for the point
Disclaimer: This is not investment advice. These weekly posts represent my simple thoughts, a few quotes, and some questions — for educational purposes only.
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One tool to experiment with:
Time Compression:
How do you think about growing net worth — what’s the best way? Is it the return on your portfolio or your savings rate that creates the most change?
The true drivers of net worth growth depend on the ground you stand on. For a simple example, we will show a hypothetical savings and return path, starting from $0.
What you’ll see is the first $100,000 takes a long, long time. Charlie Munger wasn’t as elusive in describing the difficulty. He knew that getting to $100,000 quickly was a critical inflection point, that the first $100,000 took longer than each $100,000 to follow.
In route to this figure, we have to beware of placing investment returns on a pedestal. Investment returns will eventually eclipse savings rates in importance, but it takes time.
Heeding Munger’s advice, we are better off searching ways to save an extra dollar than finding an extra percent return.
Say you save $10,000 per year.
Starting at $0, with 8% returns, you’ll have $10,800 after year one. Your net worth grew $10,800 and 93% of it ($10,000/$10,800) came from your savings rate.
Stay on this path and it takes you 7.64 years to reach your first $100,000.
And if we doubled the return to 16% it takes 6.44 years. Even doubling the market return only shaves 1.2 years off your path at the start.
Returns are important but your savings rate carries the initial weight and bears this burden for a while. There is a breakeven point, though, where the returns on investments drive more net worth change than the amount saved.
As we approach this point, time gets compressed, meaning the wait needed to experience the same relative net worth growth decreases.
Here’s how this would play out on the route to $1,000,000 — we use the same $10,000/year savings and 8% return:
$100,000 —> $200,000 takes 4.78 years.
$200,000 —> $300,000 takes 3.49 years.
$300,000 —> $400,000 takes 2.75 years.
[…]
$900,000 —> $1,000,000 takes 1.21 years.
That’s time compression.
Notice that there’s no compression if there’s no base. While it’s true that compression would happen faster if the investments returned more, it’s also true that pattering around and trying to earn massive returns is missing the forest for the trees.
You’ve bent the structure of time. Subsequent growth will happen faster, over 6x faster in our example.
All this begs the question, when exactly does the investment return matter more? What’s that golden inflection point?
Continuing with our example, it takes ten trying years of saving ($10,000 per year with 8% returns) so your investment returns finally drive more of your net worth change than your savings rate. Ten years and a portfolio of ~$150,000 and your annual returns will finally drive more net worth change than the $10,000 of savings.
If you’re under this inflection point, spend time on your base — your savings rate. Big returns are evasive, unpredictable, and risky. So if you’re under this inflection point, spend all your energy of the savings side of the equation
the first one takes a long time
Two quotes on activation energy:
Rockets burn massive amounts of fuel in a duel with gravity. But then it gets a little easier. Focus on hopping over the big hurdle of getting started, all while knowing that it gets easier along the way. It takes a lot of start-up energy to get a great thing off the ground — stay patient and keep working.
“To travel from the Earth to the sky requires propulsion. Propulsion requires energy. Energy requires fuel.”
“It will probably be harder to start working than to keep working. You'll often have to trick yourself to get over that initial threshold. Don't worry about this; it's the nature of work, not a flaw in your character. Work has a sort of activation energy, both per day and per project. And since this threshold is fake in the sense that it's higher than the energy required to keep going, it's ok to tell yourself a lie of corresponding magnitude to get over it.”
Three questions on altered perspectives:
When’s the last time something came around that instantly provided a new perspective on life?
What kind of empathy can I draw from the idea that there are experiences I haven’t had, and others have, that provide them a fundamentally different viewpoint?
In what ways has this altered perspective made me kinder, stronger, smarter, healthier, better?
Which question stuck with you? Questions like these are spotlights for the mind. Reply to this email and let me know which one shined light on a previously dark cave.
Four lines of poetry for the point:
Time is heavy when you’re starting out,
Giant efforts but minimal results come about.
Ever so slightly you see the shift,
Compressing time, returns do most of the lift.
Contact Me:
Content ideas, questions? Reply to this email or reach out to me at [email protected]
Disclaimer: This is not investment advice. These weekly posts represent my simple thoughts, a few quotes, and some questions — for educational purposes only.
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