Posted by Recently, on a trip to Rome, I was exploring the city, thinking about time and longevity. Something that really struck home, when I was standing there, looking at centuries’ old structures, was how much history they must have seen, how many people had passed through during the years, how many battles must have taken place.
It’s just incredible, and the more I thought about it, the more it blew my mind. Thousands of years of history, still standing today.
The reason I bring this up is because time is one of the most underrated and powerful tools an investor can utilise, and done properly, can mean the difference between achieving financial freedom and having a life of missed opportunity. It’s something that I think every investor needs to be aware of, so this week I’m sharing some ideas that I hope you’ll find useful.
Compounding for the win
Albert Einstein is famous for describing compound interest as the eighth wonder of the world, and although he may have meant it somewhat tongue-in-cheek, the power of compounding cannot be overstated.
Put 10k into an account earning 8% annually, and in 30 years, you’ll have around 100k, without you ever adding another penny to the pile.
Now, if you decided to wait for a decade, only leaving your money for 20 years, you’d only end up with 46k at the end. How can a 10 year time gap make such a difference? It’s because, when it comes to compounding, the growth happens at the latter stages.
Here comes the science
With compound interest, you earn interest not just on your initial investment, but also on the interest you’ve already earned. It’s like a snowball, gathering more snow as it rolls downhill.
In year one, your 10k earns 8% interest, giving you 800. So now you have 10,800. In year two, you earn 8% not just on your original 10,000, but on the entire 10,800 – that’s 864. Now you have 11,664. Each year, the base amount getting that 8% interest grows larger, so the amount of interest you earn each year grows larger too.
This is why the growth seems to explode in the later years. By year 20, your annual interest isn’t just 800 anymore – it’s over 3k. And by year 30, you’re earning over 7k in interest in that final year alone.
So, the earlier you begin this journey, the more you’re going to benefit from that compounding effect when it comes to building your wealth.
Time in the market…
The second thing I want to talk about is the 10-year wealth rule.
As most experienced investors will tell you, you never make money trying to time your entry into the market. You almost always make money by simply being in the market. Remember, time in the market will always beat timing the market, but it’s time in the market, and when it comes to property, a great rule of thumb is that your property asset will most likely double in value every 10-15 years.
That’s pretty much the average. You can obviously do it much faster than that, and of course, if you buy in the wrong location, it’ll take much longer.
My experience
To give you one example of one of my earliest investments, the first property I bought was a small mews house. And I paid 85k for it back in 1993. 22 years or so later, I sold that property for 750k. So almost a x10 return, over 22 years.
Generally speaking, if you don’t want to go after potentially risky deals, and simply hold a property for 10 years, it will typically outperform the investor who attempts to get in and flip something and keep on turning his money over and over.
The Rule of 72
The rule of 72 is a very simple way to calculate how long it will take for your money to double in value. Basically, you divide 72 by the yield per annum, and it will tell you how many years it will take.
For example, say you’re looking at a property and it’s returning 6% return on investment or yield per annum. If you divide 72 by that 6, you will get 12, and that’s the number of years it will take for your initial investment to double in value, no matter what price you pay at that yield. If you manage to find a property that is returning you 10%, then instead of taking 12 years, you’ll be looking at doubling your investment in just 7.2 years (72 divided by 10).
So if you can not only calculate the yield, but also have the discipline to look for the high yielding properties, the quicker you’re going to grow your investment. I know a lot of people are unaware of just the impact that yield can have, so it’s something that it’s absolutely worth knowing!
The 18-year cycle
My next point is something that, the first time I heard it, I immediately dismissed as ridiculous. It’s called the 18-year real estate cycle, and the theory goes like this: it takes about seven years for a property market to recover from the previous crash. Once recovered, it takes another seven years of growth, which eventually turns into rapid growth as a bubble starts to form.
That’s 14 years total, and then a crash comes along. After the crash begins, it usually takes about four years for the market to bottom out and for people to start giving up. So that’s seven years plus seven years plus four years, giving us this magical 18-year cycle.
When I first heard this concept, I said “come off it.” Think about all the factors that need to align for a recession: geopolitical pressures, economic conditions, interest rates, and countless other variables. I couldn’t believe it was possible to predict market cycles with such precision.
Examining the data
However, when I actually looked at historical data, the pattern became quite compelling. Consider the 2008 crash—it began in 2008 and lasted about four years. From 2008 to 2012, the market was essentially on the floor before starting a gradual recovery. Then from 2012 to 2019, we saw a seven-year upward trajectory. By 2019, many analysts were warning that the market was becoming overheated, and prices have continued climbing since then.
If we apply this pattern forward, adding seven years to 2019, we’re looking at 2026 as the potential start of the next crash. According to the theory, this downturn could last until 2030, followed by another seven-year growth phase.
Looking back further
When we apply this same pattern backward, it gets even more interesting. The cycle would suggest that the crash before 2008 occurred around 1990—and indeed, 1990 was when the UK currency crisis sent interest rates skyrocketing. By around 1994, property values started doubling, and this growth continued until about 2001.
Then in 2001, we witnessed a sudden explosion in the market. Everyone seemed to be making money hand over fist, coinciding with the introduction of the Euro. Interest rates in Ireland plummeted from 7-8% down to just 1-2% as they joined the Eurozone.
This fuelled an incredible boom from 2001 until the crash hit in 2008. When you look at it this way, the 18-year cycle theory holds up remarkably well for at least the past 36 years. I find that pretty fascinating, even as someone who was initially skeptical.
One good deal per year
Lastly, I want to talk about the “One good deal per year” strategy. As the name suggests, this strategy focuses on being really disciplined and focusing on finding one exceptional deal every year, rather than chasing multiple average deals and spreading yourself thin.
One good deal can outperform an entire portfolio, something I’ve found to be true when I look back on the outliers that I’ve enjoyed, such as the deal that made a 2.5million profit in the space of about six weeks. If I’d only done that one deal in a year, I’d have been doing great. I did another deal and that one turned out well too… but then there were other deals that if I’d not gone after, I’d have done better: some of them ended up being loss makers.
Focusing your energy on one exceptional deal isn’t necessarily that easy to do, because you don’t always know which deal is going to be the standout, but generally speaking, you can get an idea with time and experience – you just have to stay disciplined and ignore the pressure to reinvest any cash you’re sitting on into average deals.
A nugget of personal wisdom
Before I sign off, I just want to share some of my own personal insights. As you get older you might find yourself viewing time differently than you did when you were, say, 20. Time passes more quickly the older you get, and you may feel more urgency to get things done than you did before, a sense that time is running out.
That urgency just doesn’t exist when you’re younger, but my advice would be to try and bring that energy to important decisions as soon as you can. If you’re trying to build financial freedom, leverage your time and get started young. Make some sacrifices – you don’t need to go out every night!
The other thing I’ll say is that whilst you should aim to play a long game, make sure you’re fully present in life, rather than doomscrolling your best years away on whatever mindless BS might be on your phone
Time is your greatest asset. Invest it in the most important people, activities and achievements in your life and build a legacy like the Pantheon – one to stand the test of time!