“Sometime in the late 1800s—nobody is quite sure exactly when—a man named Vilfredo Pareto was fussing about in his garden when he made a small but interesting discovery.
Pareto noticed that a tiny number of pea pods in his garden produced the majority of the peas.
Now, Pareto was a very mathematical fellow. He worked as an economist and one of his lasting legacies was turning economics into a science rooted in hard numbers and facts. Unlike many economists of the time, Pareto’s papers and books were filled with equations. And the peas in his garden had set his mathematical brain in motion.
What if this unequal distribution was present in other areas of life as well?” James Clear
There is a term called The Power of Accumulative Advantage. “Scientists refer to this effect as “accumulative advantage.” What begins as a small advantage gets bigger over time.”
In the investment world, think about compounding. How do you become part of the 1%? You take care of compounding. It means you make compounding work for you not against you. Many top wealth managers have ongoing costs of over 2% each year. This is a gradual transfer of wealth from the client to the wealth manager. 2% sounds nothing. But when you apply “The Power of Accumulative Advantage”, the gain to the wealth managers is enormous and the loss to the investor is cruel. This is when compounding works against you, not for you.
It is important to make compounding work for you. It means you need to take an interest in how you allocate your capital…today. Not tomorrow, next week, next month, next year…but today.