She asked, “Are we millionaires yet?” It was the fall of 2001. She was joking, of course. This client opened her account with $173,483 in May 1999, in the midst of the Dotcom bust. Actually, the account stood at $153,950 when she asked.

It may have been a joke in 2001, but that is no longer true in 2021. She has taken $825,166 in withdrawals over the past 21 years, and the accounts stood at $2,078,221 as of the end of June 2021. The $173,483 had grown to a total of $2,903,387!

But that is only part of the story. She gifted $5,000 to her daughter when she turned 18. Since, her daughter has added $1,082,775 and the account has grown to $2,373,772. A mother now herself, we have recently established an account for her young daughter as well.

Three generations. Two have already become millionaires. The third generation may be on her way.

I use this client and her family as a case study for staying fully invested in the market and the impact of compounding. Albert Einstein called compound interest the Eighth Wonder of the World. He elaborated by saying: “He who understands it, earns it; he who doesn’t, pays it.” Or, as Warren Buffett has said, “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” By the way, 95% of Warren Buffett’s wealth came after age 65.1

Both mother and daughter have experienced market setbacks, drawdowns, and a few years when the accounts did worse than the market as measured by the Standard and Poors, but they hung in there and saw their accounts grow. Each of the accounts are designed for their respective objectives and risk tolerances. It shows. The mother’s return since 2010 has been 15.91% compounded annually and the daughter has been 17.55%. The S&P 500 TR was 14.58%

I believe this case study illustrates two things:

  • Remaining fully invested can yield very good results. Studies have shown that missing just the best 20 trading days in 20 years can reduce returns by as much as 50%. Nobody has a crystal ball that can correctly forecast the best and worst trading days, although many have tried. But we have yet to see anyone who has been successful in doing so.
  • At Adams Financial Concepts we have a passion for creating and maintaining wealth. While we recognize that past performance is no guarantee of future returns, we also know that bigger firms do not seem focused on getting good returns for their clients. In a previous newsletter, we pointed out that a top-100 RIA firm had, on average, a client return of only 3.7% in 2020. The S&P 500 TR was up 16.3% and AFC was up 77%. Yes, 2020 was an exceptional year for AFC, but the point is this: At AFC we have a passion for creating and maintaining wealth for our clients. We wonder if the big firms have a passion for creating growth at the expense of their clients.

At AFC, we are pleased when our clients do well. No, we cannot turn $173,000 into $1 million in 18 months, but that is our goal over the longer-term.

If you are not an AFC client, we would be happy to give you an no-obligation review of your portfolio.

1. “Buffett made 95% of his wealth after the age of 65”, Cambridge House, August 28, 2020.