One of the most interesting things about investing is that it operates in an exponential world. We live much of our lives in a linear world, which is easier for the mind to grasp. Linear growth means a steady increase over time. Exponential growth is different. It builds on itself and can accelerate in a powerful way. Investing and compound interest work this way, which is why time can have such a large effect on a portfolio.

When asked how people go bankrupt, Ernest Hemingway replied, “Two ways. Gradually, then suddenly.” In investing, the same pattern works when it comes to building wealth. Results often appear modest at first, then accelerate over time. Investing legend Warren Buffett offers one of the best examples.

The chart above shows Warren Buffett’s net worth over time. He began investing at age 11, when he put $114.75 into a natural gas company called Cities Service. Today, he is one of the wealthiest people in the world, with a net worth of about $147 billion. What stands out, however, is that he did not become a billionaire until age 50. Despite being one of the greatest capital allocators in history, roughly 99% of his net worth was built in the second half of his life, with time and compound interest playing the leading role.

There are a few useful lessons here for investors. The long term results of any portfolio depend on two things: the rate of return and the number of years that return is allowed to compound. Of those two factors, time is often the easiest to directly control. That is why, with younger clients, I stress the importance of building a steady habit of saving and investing. Even if you don’t start at age 11 like Warren Buffett, each additional year matters.

When I look across all of my client portfolios, I often see a similar pattern. Many of the largest accounts belong to older clients, and one key reason is simple: they have had more time to benefit from being invested in the market. As portfolios grow, however, managing them well becomes even more important. Sound advice can add real value because the decisions involved affect a much larger pool of assets. For clients in retirement, another important question is how to draw income from a portfolio in a sustainable way. That challenge is not really reflected in the Warren Buffett example (he worked until age 95 and is famously frugal, still driving a 2014 Cadillac that he bought with hail damage because it was cheaper). It is, however, an important topic and one I will address in a future letter.

No matter where you are in your investing journey, Warren Buffett’s story is a powerful reminder of two enduring truths: compound interest matters, and time matters even more.

Stay disciplined,

-Andrew