Can scrounging for soda pop cans make you a millionaire?

A five year old girl named Star is brought up on a Bohemian island where the locals make their own clothes, where neither men nor women use razors to shave and where nobody wants to mask the aphrodisiac quality of good old fashioned sweat.

Unfortunately, despite how appealing this might sound (especially at tightly congested town hall meetings) it isn’t paradise.  Butterfly doesn’t want Star (her young daughter) growing up in a dump.  Wanting Star to respect the environment, she convinces her to spend 20 minutes each day, collecting cans and trash from the side of the country roads.

Butterfly takes Star to the local recycling depot and collects $1.30 in refunded cans and bottles.  Although a Bohemian at heart, Butterfly’s no provincial bumpkin.  She recognizes that if she convinces Star to earn $1.30 a day from soda pop bottle returns, she can invest the daily $1.30 to make Star a millionaire.

Butterfly doesn’t take any special risks with that money.  Putting it into the U.S. stock market, Star earns an average of 9% per year (which is slightly less than what the stock market has averaged over the past 80 years).

Fast forward twenty years.  Star is now 25 years old, and although she no longer collects cans from the ditch, her mother insists that Star sends her a $41 monthly cheque (roughly $1.30 per day).  Butterfly continues to invest Star’s money.

Living in New York City, Star lives “the good life.”  Working as a lawyer, she drives a BMW, dines at gourmet restaurants and blows the rest of her significant income on clothing, theatre shows, expensive shoes and flashy jewellery.  But other than the stash her mother invests, Star is completely broke.

For another 15 years, Star and her best friend Lucy—who she shares a condominium with– live their flashy lives on the edge.  They’re a long way from Star’s granola upbringing.

But Lucy figures something out: “Star, we haven’t saved any money for our retirement.  If we keep going like this, we’re going to be working full-time until the day we die.”

Not wanting to think about retirement, the 40 year old Star still wants a lifestyle like Paris Hilton’s slightly poorer cousins.

Lucy, on the other hand, starts investing $800 a month for her retirement.  Over time, she ends up making the same return that Star makes on her “pop can” money:  9% per year.  But she’s investing far more than Star, who’s still mesmerized by the good life.

Fast forward 25 more years.  Star hasn’t invested any more than $1.30 a day.  Now 65 years old, she has no idea how much her mother has squirreled away from this modest contribution.  But Star takes out a calculator and finds that she has invested, over the many years, a total of $28,800.

Star didn’t know anything about compounding interest, so she figured that if her mother had invested $28,800 of her money, then Star would have more than that in her account—maybe double or triple that—but she really didn’t know.

Lucy, however, invested far more than $28,800—despite starting years later than Star.  Lucy was responsible enough to invest $240,000.

But there are a couple of things we can’t forget.  Warren Buffett is fond of saying that Noah didn’t start building the Ark when it was raining.  Compounding interest works miraculously when people get on with their investing, instead of procrastinating.  Call it the Noah principle.

1.  Star didn’t invest as much, but she started earlier, following Warren Buffett’s “Noah Principle” (Star invested $41 a month for 60 years for a total of $28,800 invested).

2.  Lucy invested far more ($800 a month for 25 years for a total of $240,000) but she started later, ignoring the “Noah Principle”.  Lucy and Star both made 9% per year from the stock market.

 So what were the eventual sizes of their accounts?

Star:  
Started investing at: Age 5     
Percent of annual return:  9%
Total invested: $28,800.00
Portfolio at age 65:  $1,017,514.22
   
   
Lucy:  
Started investing at:   Age 40
Percent of annual return:   9%
Total invested:   $240,000.00
Portfolio at age 65:  $886,310.18

Mastering the Noah principle, Star’s mother, Butterfly, proved that her daughter could retire a millionaire, despite her irresponsibility with money.  The Noah principle plays favourites only with those who understand and apply its magic. 
  
 You might have missed the opportunity to start investing as a 5 year old but the earlier you start, the better.   Starting early can give you the luxury of investing far less money over time.  And the less you put towards investments, the more money you can spend, throughout your life on luxury items – if that’s what floats your boat.





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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