I am a big believer in setting goals and going for them. (And not only because the alternative of not setting goals, playing Clash of Clans and then falling asleep in the bath is an ever-present default…)

Read any biography of anybody who ever did anything interesting and you’ll find someone who mapped out their aims, set out their goals, and made their to do lists – and then got doing.

And not just hard-nosed but a bit boring businessmen, either.

Below is the work schedule of the novelist Henry Miller, who was once banned as the purveyor of filthy libertine tracts about having short relationships in Parisian public toilets.1

I came across this schedule years ago and saved it, and I never again told myself that a free spirit just creates, spontaneously, without thought or planning.

If you’re Mozart, Shakespeare, or Einstein then you can get by without a plan.

If you’re not, make one and regularly review it.

Athletes and entrepreneurs, investors and A-Level students – all can and do benefit from setting goals.

Stepping stones

Goals may seem boring, but they can make everything more fun.

That’s because goals can be broken down into mini-goals, and achieving those can bring their own rewards – even while the main goal remains as distant as Mars to Elon Musk.

If you’ve ever walked in the mountains, you’ll know that climbing a foothill only to see you’ve still so far to climb to the summit isn’t always exasperating – often it’s invigorating.

It’s the same with anything. Break it down, break it down, and then fill your To Do list with ticked off achievements.

When I started Monevator a decade ago, my first financial goal for the site was to make £1 in a day.

It took much longer than I thought it would.

I made my first £1 in a day when I was away in Romania, of all places. I was on the point of giving up writing a website that nobody read.

That was six or seven years ago. I hit my mini-goal, smiled, and carried on.

Goals, fingered

Of course, goals aren’t everything, either, and it’s okay to miss them for good reason, and for your priorities to change.

Just so long as you do so consciously, I think.

Who cares if you never ticked the Statue of Liberty off your New York list because you were too busy romancing your lover in Central Park?

Monevator has been a long tale of under-achievement. It grew far more slowly than my other ventures, the money has always taken longer than I expected, and then some of the money actually went away again.

To be honest I thought by now it’d either be an optional full-time job or else I’d have dumped it for something else.

But after years of working away at something, you discover stuff you never suspected. You may achieve things you didn’t even think of.

Working closely with my co-blogger The Accumulator – who wasn’t around at the start – was not a goal when I began this website. But it has been a highlight.

Also, I’ve never created anything that gets as much positive feedback as Monevator, whether via email or in comments here on the site or from certain friends in real-life.

I didn’t have “receive emails every week from multiple people who tell you that Monevator is what has turned them into investors” as a goal from day one.

Perhaps I should have? It’s been the best thing about the blog, as it’s turned out.

But the targets I did have – articles twice a week, links on Saturdays, and only write substantial posts – kept Monevator going for long enough to discover these other rewards.

Dream on

My Achilles Heel is regularly revisiting goals once I’ve set them – and especially with using visualization to help persuade them into being.

I believe regular visualization is an important part of using goals, however daft and New Age you feel when doing it.

Unfortunately I often feel so daft that I don’t do it at all. I think that shows in some of my weaker results, compared to other goals that have more easily come alive in my imagination.

Creating tangible touchstones and then keeping in touch with them – that’s the real power of goals.

I don’t believe there’s an unseen force in the universe that conspires to give you everything you wish for if only you’d ask, as certain books allege.

But I do believe that if you concentrate regularly on something, it focuses your talents and your mind on that thing.

You flake out less often. You spot opportunities you otherwise might have missed.

And other people will call you lucky.

Negative imagery and mental beliefs are at least as potent, too.

Recently I’ve been wondering if the reason I’ve never bought that house in London is because I kept imagining myself not buying a house in London?

My self-image is of a canny investor who battles the market and bags bargains. That fanciful image and the London property market don’t mix – or at least not on my budget! Perhaps if you’re a property mogul things are different.

Ironically though, I wasn’t ever really thinking of my potential London house purchase as an investment, although I do absolutely believe that’s what homes are.

I just wanted a place of my own. (Cue strings…)

Maybe if I’d spent more time imagining myself pootling about such a property – and saw my battered leather armchairs, my friends in them, a garden full of herbs, a giant aquarium, a pet tortoise, a fireman’s pole that speeds you from the bathroom to the bachelor den…

…um, well, whatever.

The point is I might at least have bought a two-bed flat in Crouch End.

Bolivian marshaling power

Visualizing goals sounds like a First World problem.

“Deep breath. Now, picture yourself with the perfect thigh gap as you sip your asparagus smoothie beaming with huge delight, while throwing uneaten salted caramel brownies out of the kitchen window into a garbage bin below…”

So I was intrigued to receive a gift this week from a friend of mine who is just back from Bolivia:

As I’m sure you can tell, it is of course a bundle of miniature $100 bills, with some sort of lucky charms attached, all wrapped up with a rubber band.

Ahem. Just what I’ve always wanted?

Well, said my friend, perhaps it is.

It transpired he’d been to the Fair of Alicitas in La Paz, where he’d thoughtfully acquired the mini-money for me from this chap:

That, my friends, is a genuine Shaman. I’ve even seen a video where he blesses my money with some sort of smoky incense before squeezing something out of a detergent bottle over it. Possibly detergent. Hopefully detergent.

According to Wikipedia:

The indigenous Aymara people observed an event called Chhalasita in the pre-Columbian era, when people prayed for good crops and exchanged basic goods.

Over time, it evolved to accommodate elements of Catholicism and Western acquisitiveness.

Its name is the Aymara word for “buy me”.

Arthur Posnansky observed that in the Tiwanaku culture, on dates near 22 December, the population used to worship their deities to ask for good luck, offering miniatures of what they wished to have or achieve.

My friend saw people buying and having blessed everything from mini computers and tiny cottages to scaled down smartphones.

You could even choose between different smartphone brands!

Are the ancient gods of the Tiwanakuns still sprinkling their luck dust over the people of La Paz?

Who am I to say?

But do Bolivians who buy and have blessed a tiny diploma work harder for their degrees?

Do the people of La Paz who put an officially sanctified mini-car of their dreams on their bedside table subsequently skip a few more beers and work a few more extra hours to get the cash together?

And would you be more motivated to save and invest your way to financial freedom if you wrote your goals down, collected together some images that resonated with the life you’re aiming for – whether mid-week walks in the country or a flash sports car as a go-getter – and then studied them once a week, visualizing everything, imagining how you’d feel to have achieved your goals?

In every case I’d bet on it.

1. Something like that. I read him in my student days. [↩]

Were I able to go back in time to impart one piece of wisdom to my teenage self – one nugget that would have made all the difference to my financial future – I would somehow engineer the absence of my maths teacher for a single lesson.

Then, heavily disguised as fresh supply teacher meat, I would instruct the class in the power of compound interest.

It wouldn’t take long, needn’t tear a hole in the fabric of space-time, and it would have made a far deeper impression on me than another drone-a-thon about quadratic equations.

Because everyone likes the idea of money for nothing.

Alas in reality what little money I did lay my hands on at that time went on instant gratification. You know how it goes.

If only I had understood what a mighty money tree I could grow by saving even a pitiful amount early on and watering it with time and compound interest!

How compound interest works

Compound interest is the astonishing multiplier effect1 of interest earned on interest, over time.

It works like this for a saver who sticks away £1 and earns interest of 10%:

Year	Principal	Interest @ 10%	Total
1	£1	10p	£1.10
2	£1.10	11p	£1.21

In Year Two, you don’t add a bean to your savings, yet you still rack up more interest than the previous year (11p instead of 10p), because you also earned 10% interest on your interest.

Big wow. It doesn’t sound so life-changing – until you scale up the amounts and timescale involved.

Once that self-feeding, compound interest mechanism gathers momentum it creates a runaway money snowball that can transform your financial position.

But time is needed to generate that momentum. The sooner you start saving and investing, the more dramatically compound interest can work for you.

Compound interest unleashed

Let’s consider two investors: Captain Sensible and Captain Blithe.

From the age of 25, Captain Sensible invests £2,000 per year in an ISA for 10 years until he is 35. At 35 he stops and never puts another penny into his fund again.

Captain Sensible then leaves his nest egg untouched to grow until he hits age 65. He earns an average annual return of 8%2 and when he looks at his account 30 years later, he has £314,870 to play with.

Captain Blithe, meanwhile, spends the lot between the ages of 25 to 35. Only when he hits 35 does he sober up and start tucking away £2,000 per year in his ISA. He keeps this up for the next 30 years until he reaches 65.

Captain Blithe earns an average annual return of 8%, too. He ends up with £244,691.

To recap:

• Captain Sensible has invested a total of £20,000.
• Captain Blithe has invested a total of £60,000.

Yet Captain Sensible’s pile is worth over 28% more than the late-starting Captain Blithe’s – even though Sensible only invested a third of the amount.

Do it. Do it now!

Remember our ho-hum interest table above? Let’s dial up the years setting to 30 to see how she performs:

Year	Principal	Interest @ 10%	Total
1	£1	10p	£1.10
30	£17.45	174p	£19.19

After 30 years at 10%, you’re earning almost twice your entire initial investment as annual interest. That’s the power of compound interest.

Of course, the only place you can hope to get a 10% return these days is the stock market, and stocks go down as well as up. Real-life returns are more volatile, but the principle is rock solid.

Compound interest is an offer you’d be mad to refuse. Have a play with our compound interest calculator to see how much you can achieve.

When you’re young, time is on your side. Make the most of the once-in-a-lifetime opportunity by sticking some money away (anything is better than nothing) and let compound interest get to work securing your future.

You’ll be laughing later. (At me, as I snivel and regret my youthful folly).

Take it steady,

The Accumulator

P.S. – Even if you’re not so young, now is still the best time to start.

1. At this point most compound interest articles like to quote Albert Einstein as saying: “The most powerful force in the universe is compound interest.” It seems more likely that this is an internet meme than an Einstein quote, but it lives on because it would be fantastic if true. [↩]
2. That is, an 8% annual average return over the entire 40-year investment period. [↩]

Good reads from around the Web.

Until you pay attention – as more of us have with ongoing the oil price crash – it’s hard to fathom just how volatile commodities can be.

Even veteran investors who have a handle on the ups and downs of the stock market can turn seasick looking at a graph of the choppy pricing of copper, corn or gold.

The stock market can seem a millpond by comparison.

The following table from US Global Investors1 shows how a metal like nickel can soar 154% one year before slumping 24% and then a further 55% in the following two years, and then rally 59%!

The original graph is interactive. Hours minutes of fun!

Slippery slopes

Being aware of this volatility obviously matters a lot if you’re an active investor.

It’s easy to get sucked into buying, say, oil exploration companies because they’ve fallen 20% on a 10% dip in the oil price.

After the oil price has fallen 80% and your shares are down 90%, you can reflect on your haste at your leisure.

Personally, I think commodity prices in today’s globalised and ‘financial-ised’ world are probably unpredictable even by experts.

That doesn’t mean you can’t invest in companies that churn them out, but it does imply that as a stock picker I want to be buying firms I judge can do well over a wide range of prices.

Now, many amateur experts will (in the good times) say different.

Hoards of private investors became part-time experts on the oil and gas industry, for instance, over the past decade, and on small cap gold mining companies for much of it, too, and loaded up their portfolios to the seams with such shares when prices were high.

And many have lost at least half their shirts in the subsequent rout.

I’m not belittling their expertise or ambitions. (That would be pretty hypocritical of me, given I am equally barmy in engaging in active investing myself.)

But I would observe that correctly judging which is the superior small cap oil company can be a hollow victory if it means that when the whole sector falls by 90%, you only lose 80% of your investment.

In this case you’d clearly have been better off out altogether. But from observation it seemed that many experts were wildly over-exposed – and emotionally committed – to the sector, and they followed the market down.

I’m not saying there’s never a time to invest in such companies. (Disclosure: I hope now is such a time, as I’ve loaded up, on and off, over the past 3-6 months).

But in my opinion, the hugely volatile nature of commodities means an active investor in the sector needs to be a confident trader, too, who is prepared to chop and change based on (gasp!) price action.

Passively poorer

Passive investors should also be aware of commodity price volatility.

That’s because every so often – usually after a couple of good years for the asset class – some people will start advising you to add direct commodity exposure to your portfolio as a diversifier.

I don’t mean to buy the major oil companies or miners that you will have exposure too anyway via your index funds.

I mean specific commodity exposure, through Exchange Traded Products or some other sort of futures fund.

From his own research, my co-blogger The Accumulator has typically been wary of that advice, and the latest US data suggests he is right to be cautious.

The following table – tweeted out by Morningstar’s editor-in-chief Jerry Kerns – shows how commodities have generally done nothing good for portfolios over the past 15 years:

Buy the dip?

Now you might be thinking this all sounds a bit defeatist. Don’t we normally suggest that slumps in a market can be a good time to buy in?

Well, I think that’s possibly true of companies that produce commodities, as I’ve alluded to above.

But being exposed directly to commodities themselves is a different matter.

Many financial assets – houses, equities, land – greatly appreciate in real terms over the long-term, despite the ups and downs on the way.

But there’s much less of that long-term appreciation in commodities in real terms, because we get better at extracting them and at exploiting them.

Perhaps someday that will change (that’s what the commodity super-cycle theory was all about) but it’s not done so yet.

And at the same time the prices are very volatile, so you’re basically adding risk without reward.

There are also extra costs and technical reasons why getting exposure to commodities via financial assets can be disappointing, too.

Let the smart money figure it out

As always, there will be exceptions – a few rare and successful market timers, whether by luck or skill, and some hedge funds and the like that have managed to get good returns over multiple cycles from the commodities markets.

But generally, I believe most people will be better off just owning whatever the global stock market owns when it comes to commodity-extracting companies.

[continue reading…]

1. Via Abnormal Returns. [↩]