February 2025 Update
Current Thoughts
If you ran a business that started with capital of £1/$1 and you worked hard and doubled that value every year for 20 years, how much would you have? You probably see where this is going and the answer is obviously more than you’d intuitively think due to the magic of compounding. £1,048,576 is the answer. That’s great’n’all, but nothing we haven’t seen hundreds of times before on financial websites all over the internet.
Now lets add a dimension and consider that pesky detail of tax. Lets assume the government in the country you reside have the simplest tax system ever and they tax you at 25% on company profits every year. How much do you have after 20 years? The answer is £72,571. Wow. What happened? That’s more than £976,000 gone. Evaporated. Vamoosh. The government inserted an enormous spanner in the works and interrupted the compound interest machine. The bummer here is that the government doesn’t have £976,000. How much do you think they have? Gone on . . guess. They have £24,190. Read that again. Let that sink in. If like me, you didn’t believe it, make a spreadsheet and prove it to yourself. Or just use this handy dandy interactive chart (created in the latest version of Claude)
Investment Growth Calculator
Investment Summary
Final Value (Before Tax)
Final Value (After Tax)
Total Tax Paid
Year-by-Year Data
| Year | Before Tax Value | After Tax Value | Annual Tax | Cumulative Tax |
|---|
By interrupting the magic of compounding the government destroyed £951,815 worth of value. Now you may rightfully point out that a business that doubles it’s capital every year over 20 years is unlikely. Yes, the example is slightly skewed for effect. But this fascinating example shows what a insidious effect tax has on wealth creation. Worth thinking about and bearing in mind.
Net Worth Comments
Stuff has been happening in the world and the stock market didn’t like it much. If I had to summarise in two words . . Trump, tariffs. This has resulted in a pronounced downward spike in net worth. I’ve not yet purchased this months tranche of my preferred global tracker, but I’m sure looking forward to it! It’s times like these that help future growth.
Points of note; cash has increased slightly as mentioned above and crypto has . . well . . been crypto. Check out the Crypto APR column from last month to this. It’s a wild ride.
