National Geographic makes a provocative claim about longevity on one of its recent covers:
Our genes harbor many secrets to a long and healthy life. And now scientists are beginning to uncover them.
While it might be a stretch that life expectancy in the US will be approaching 120 any time soon, what is not a stretch is that life expectancy continues to increase. Among many other aspects of increased longevity, the financial implications of being a good investor are becoming more pronounced.
To illustrate, consider a simple example. Suppose that when the baby on the cover of the magazine graduates from high school at age 18 he decides to take a summer job selling alarm systems door-to-door. This boy is a very good salesman, and is able to pull in $100,000 before he heads off to college. He decides to take that sum of money and invest it in the stock market. Suppose that this boy ends up never needing to use that money and so throughout his very long life that money just stays invested and is able to earn 9 percent a year. Compare that return to a different person who, over the same time frame, invests $100,000 and earns only 6 percent a year.
With this simple example, it becomes easy to see how greater longevity can have an outsized reward for those investors who are able to generate even a couple percent excess return over time. After only 10 years of investment results, the investor earning 9 percent a year only has 1.3 times more money than the investor earning 6 percent. However, after 100 years there is an enormous difference of 16.3 more money.
Something to think about next time you hear someone say that it is not worth it to try to find an active strategy that is able to generate a couple percent in annual excess return over time.
This example is presented for illustrative purposes only and does not represent a past recommendation. A relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value.