No Short-Cuts to Creating Wealth

The ‘butterfly effect’, a concept that is mostly used in metrology, can be extended to personal finance too. The gist of the butterfly effect is that small changes over time can really add up and it is impossible to predict their impact over time. What might seem like a very small and insignificant change in one place could result in large differences somewhere else or at a later stage. If something compounds and a little change now seeds a larger change in future, the results are so extraordinary that it defies all logic. 

One of the best ways to understand this concept is to understand how renowned and legendary investor Warren Buffet built his fortune. There is a plethora of books and websites dedicated to this topic, and most of them cover all the aspects relating to how he values, selects and invests in stocks. Nonetheless, what they really miss is the period for which he has been investing and remained a good investor. He started investing when he was 10 years old and now he is 91 years of age, and it is estimated that his net worth is USD 114.3 billion currently.

Of this, almost USD 114 billion has come after he completed 50 years. Besides, USD 110 billion has come after he completed 60 years. So, his investment in initial years were adding up to so its impact in later years. So, it is not only the investment acumen that matters but what is also equally important is that you remain invested for a longer duration. Therefore, creating wealth is a slow process and it has a snowball effect. Though you start small, over a long period your little investment becomes larger and larger. Hence, give your investment time to grow. There is no short-cut to create wealth.

SHASHIKANT