Retirement Planning and Star Stuff
As our discussion with time progresses, there is no better way to explain the effects of time better than a look to the stars. Stars are a window to the past. They offer us a glimpse of what was and although we perceive them in the present, what we see is actually an event that has traveled across space only to appear as a fixed apparition in our night sky.
There are 400 billion stars in the Milky Way galaxy, most of which are clustered at the center. Our little solar system of which the sun would be considered not much more than typical is on the outer reaches of the spiral. In fact, we are mostly guessing what the Milky Way looks like. When we depict the galaxy as a spiral, we are actually assuming that we are much like Andromeda or M31.
As I introduce the section just before compounding, I mention a celestial event that took seven years to reach our night sky. When SuperNova 1987A exploded into the night sky astronomers were thrilled.
It was the first "nearby" supernova to appear in the last 3 centuries. In addition to the light show, astronomers were able to detect 19 of the elusive neutrinos produced by the collapse of the star's core. It is estimated that for an instant in 1987 on the earth the neutrino luminosity of SN1987A was as large as the visible-light luminosity of the entire universe.
Compounding has similar astronomical qualities. The savings socked away at an early age literally explode as time progresses. In the same way the light from SN1987A traveled, compounding offers a chance to illuminate an other wise inanimate lump of cash.
Einstein, yes, the same one with those revolutionary theories about relativity and time and space is credited with the following quote: "compounding is the most powerful force in the universe". But it is doubtful that he actually said exactly that. With his death occurring in 1955 and closest attachment to the quote appearing almost 25 years later and in numerous versions, his affiliation to the quote appears remote.
He may have appreciated the elegance of the math, the way money can grow as if by magic using compounding. What he wouldhave been marveling at was the mathematical simplicity of the Rule of 72.
Rule of 72 works like this: If you wish to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at six percent interest, divide 6 into 72 and get 12 years.
If you are curious at how far that beam of light from SN1987A traveled in a year, you would be required to just a little math. A light-year is the distance that a beam of light, uninterrupted and in empty space, would travel in a year -- which is about 9, 470, 000, 000, 000 (nine million million, four hundred seventy thousand million) kilometers. Multiply that by seven.
Douglas Adams' The Hitchhiker's Guide to the Galaxy described the vastness of space as "Really big. You just won't believe how vastly hugely mind-bogglingly big it is. I mean, you might think it's a long walk down the road to the chemist, but that's just peanuts to space."