“You can do what you want but saving love doesn’t bring any interest”.
Mae West (American Actress 1892-1980)
The Captain of a vessel is in a position to council the Crew on their financial future. Good financial advice from a respected leader can change lives. I talk with my crew about saving their money while they are young and the miracle of interest.
Yacht crews are a unique group of individuals that have the chance to save money. In many cases, they do not have the same expense structure that people in the private sector encounter. Housing expenses, food, personal vehicles and transportation demands, health insurance, education expenses, and many times even toiletries are paid for by the vessel.
For example, a 22 year old American deckhand or a 3rd stewardess with a possible starting yearly salary of $30,000 has a take home pay of about $24,430 after taxes. That $24,430 is disposable income to be used by the crew member for their best benefit. This brings forward the premise of the “miracle of saving and interest”.
If that stewardess or deckhand put $1000 per month in a small or large capitalization fund (small or large cap fund) for 8 years (96 months) without fail and then never touched or added to that fund again, at the age of 65, that yachtie would be a multi- millionaire! That’s the miracle of interest. The end results of saving and interest shown on this table are astounding!
|
Interest Rate
|
Amount saved over 8 years
|
Balance at 65 years old
|
|
10.4% Large Cap Stock
|
$96,000
|
$4,513,445
|
|
12.7% Small Cap Stock
|
$96,000
|
$10,113,795
|
Given the same scenario but a less aggressive saver at $200.00 per month (515 months) until the age of 65, that yachtie would be a millionaire; once again, the miracle of interest.
|
Interest Rate
|
Amount Saved over 43 years
|
Balance at 65 years old
|
|
10.4% Large Cap Stock
|
$103,000
|
$1,770,901
|
|
12.7% Small Cap Stock
|
$103,000
|
$3,620,754
|
This type of return has been traced through history. The best historical measures that I have found covers the 81 year period from 1926, the “real” inception of the Dow Jones, through 2006 and are as follows on the yearly average: inflation 3.0 percent; U.S. Government Bonds 5.4 percent; large capitalization common stocks 10.4 percent and small capitalization common stocks 12.7 percent. (Figures from the DOW Investment Group LLC)
The differences between historical rates of return among various asset classes are not random events. They are based on the fundamental principles of capitalism which brings freedom to save and invest. For this system to attract investment capital, the timing of the investment is everything. A good investment policy is one that usually does not change with market conditions. It is also a policy that should only be modified with a major shift in someone’s time horizon.
A one on one conversation is the perfect chance to encourage crews to save while they have the chance. It can be as simple as going on-line and looking up Ameritrade, Scottfree, Schwab, or numerous other brokerage accounts that can get them started on the road to financial security.
The most powerful force in the universe is compound interest.
Albert Einstein, Nobel Prize for Physics in
1921 (1879-1955)
This month’s To Do with Your Crew
Have a one on one conversation about saving and the miracle of interest.
Fair Winds and Calm Seas,
Captain Ted Sputh