Hold on for dear life: How I learnt to stop worrying and love compound interest

Stripped to its bare nuts and bolts, compounding is interest on interest. In other, more detailed, words, if the financial markets and your financial adviser keep their side of the bargain—which over a long period they tend to do—at the end of it all you should have more money than what you’ve put in. The more money stashed away, the more interest you earn, and the more the interest on interest you generate. It’s financial inception. It’s financial alchemy. It’s a modern-day miracle. If you save, of course.

Let me tell you a thing or two about compounding. It doesn’t only apply to finances. Nothing wakes you up to the realities of life compounding as becoming, first, a parent of one, and then a parent of two. Feeding two human beings is infinitely more challenging than feeding one. Funding the existence of two children is more than double the cost of one. This may seem like a glass-half-empty take on what the financial fraternity has been preaching ever since storing away money for a rainy day became a thing, but there’s a pretty big bright side there.

Save, you dis-saver!

South Africans are notoriously bad savers. As in, the worst. The South African Institute of Savings (SASI) has gone as far as to label us a nation of “dis-savers”. In 2019, the household savings rate in SA spiralled to -0.5% of gross domestic product, compared to India and China where the rate hovered somewhere in the double-digit percentages, despite comparative low household incomes. Covid-19 and the related economic beatings have certainly negatively impacted these figures. But slapping us with the Dis-saver moniker is rather disingenuous. When my three-year-old neglects to clean up the chaos that usually results from playing, I gently show her that we clean up after playtime and coax her toward the light with positive reinforcement, even though my cupboard a few metres away is in a complete state of disrepair. This is the way of the parent. It’s also worth mentioning here that at present, SASI’s website is out of order…

We’re risk-averse at heart. A glass-half-empty species. It’s the reason we save and it’s why we spend our lives constructing a net of short-and long-term savings and insurance policies to catch us when we stumble over many of life’s hurdles. So, when I’m not busy saving, I’m stressing about not saving, which, according to statistics, I’m obviously not alone in doing.

There’s the retirement annuity, the tax-free savings account, the equity fund, some active, some passive, all chugging along and sputtering to a halt ever so often when circumstances call for cash. Literally, in the last two days while writing this I’ve drilled into a water pipe in our home and scuffed the nose of my car on an electrical box. But we try to keep the various savings vehicles rolling. And there, somewhere in the conversation, is the crypto savings account I recently discovered.

I bought a camera

I heard about Bitcoin for the first time in 2017 when its value stood firmly somewhere around R17 000 and it was still considered magical internet money.

I bought a chunk. I joked with my colleagues then, at a financial niche publishing house, about funding my retirement one day with this investment. We laughed at these jokes and stopped laughing when the price soared to the heavens, and then picked up where we left off when it all went to Hell again. I sold all crypto holdings not too long after, when BTC was at R200 000, to fund an expensive photography hobby.

While continuing to feed the traditional savings machine, I’ve since put away the remains of the month into an Ethereum or Bitcoin savings wallet for our two children. Not much, just the amount of a skipped night out or what could have been a restaurant meal, which are pipe dreams anyhow; with kids, time to yourself does not compound, it evaporates.

The growth in value over the years of the two largest coins would have meant some serious compounding, with the added measure of the interest gaining in value every time Bitcoin or Ethereum surges like a tidal bore, a strong tide pushing up against the current.

The joke about retiring with our BTC holdings has somewhat shifted to joking about retiring in general. We’re living longer, working harder, spending more, saving less. Retiring at 55 nowadays would land you squarely in the boomer bracket, or among the few who really took to heart the HODL mantra. These include the millionaire teens featured in 5-minute news pieces, who did nothing more than buy a few digital coins and not sell them. I am not one of these youths. I bought a camera. But we will rebuild and hold on for dear life while doing so.

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