March 5, 2023
My new book: Build The Retirement Fund You Deserve. Be Rich, Be Happy deals mainly with the impact of the future value formula may have on your retirement and how it will change the world as we know it. All the ingredients needed for this massive societal transformation have never been gathered in this fashion before.
The Future Value equation is FV = PV (1 + g)t. The formula is rather ordinary and has been around for centuries. It starts with the Present Value of some asset to which we apply a growth rate (g) over a number of years (t). This formula will significantly impact the world in the coming decades.
Since the dawn of time, humanity and everything organic has adhered to this formula, whether it be population growth, financial instruments, savings, money supply, or anything else. Even a small positive growth rate will have an impact over time. For instance, with a population growth of about 2%, the world population should reach 50 to 60 billion people in 100 years. That should be quite a game-changer. On the other hand, if (g) is negative, you will have a decaying function with zero as its limit. Sterilize all the people, inject them with some gain of function drug with this purpose, and in some 100 years, almost no one will be left alive.
But, even if we have a formula for the future value, nothing is assured. Whether looking at projections, estimates, expectations, or theoretical values, you must wait until you know the future value (i.e., you have arrived) before calculating the growth rate that brought you there. Otherwise, all you will have are estimates and maybes.
When looking forward, nothing about a growth rate is certain. To the very end, most tomorrows will likely resemble the day before, except the last one. Nonetheless, we can easily make estimates and projections about anything with an exponential function.
Up front, the world might never be equitable simply due to this future value equation.
First, no one has the same present value for their existing marketable assets. Second, everyone could have a different growth rate on any of those assets. And third, those assets might have been invested over different time horizons. The person or organization with the highest present value, lasting the longest and at the highest growth rate, will have a disproportionate future value compared to others that started with lower funds at a lesser growth rate and over a shorter period of time.
For example, take BlackRock's $9.7 trillion in assets under management (AUM). Let it grow at a 15% rate for 50 years. By then, at that rate, using the future value formula, BlackRock should have some $10,500 trillion under management. That was an easy forecast to make.
But there is this little problem with that. First, we should answer the question: what is the value of all the assets on the planet? That can be estimated too. Current world assets total about $470 trillion. World GDP averaged 3.5% growth over the past 60 years, so let's be generous and make it grow at 5% per year. In 50 years, those assets should reach $5,400 trillion. In 50 years, BlackRock could manage about twice the world's total assets. That is definitely a problem. The job will be done in less time, more like within 45 years. What would happen after that would become the next big question.
A single corporation seeking some return on invested capital could end up owning the world's assets or, at least, have them under management.
This total change of ownership will result from chasing profits for the sake of growth. It is not some war against other countries or other organizations. In any inflationary scenario, you must find ways to increase the value of your assets. Otherwise, they will slowly decay and wither away.
These people will not do it to conquer the world. They will do it to make a profit. And as a consequence, a side effect, they will have bought the world. The planet would now have an almighty boss, a corporation that might answer to absolutely no one but themselves.
Can any other organization do the same as BlackRock? Yes, anytime. Countries with colossal heritage funds and even a group of super-wealthy individuals could unite and do the same. How will something like this change our perception of the world or of each other? That might be the biggest question of all.
This ownership transition will be rather pervasive since most of this will be unseen. Acquiring assets can be done sitting behind a keyboard with almost no one else having any notion of what you will be doing. It will be a massive transfer of wealth as has never been seen in the history of humanity. A few hands pressing keys on keyboards, reshaping the world. And, we will not have seen a thing coming. Only when we will realize it has been done will we wake up. But by then, we might have no recourse to do anything about it.
The US owns about 31% of the world's assets, while Europe has 23% and China 18%. Which one will grow the fastest? They are the premier contenders. Are other contenders ready to take that challenge?
As individuals, what can we do? You do not stand a chance. However, with little choice in the matter, we will have to battle it out to take our piece of that pie, even if it turns out to be minuscule.
There will be great competition for all the assets in the future. Countries, nations, generational funds, hedge funds, worldwide companies, and conglomerates will all want more of those assets to compensate for inflation and achieve some return on their investments. You will have to navigate through all that without losing your focus.
If you are left behind, you will have nothing to stand on. If you needed some, it should be your long-term motivation: to be there and still standing with your piece of the pie.
My book discusses how you could carve your own space in this new world of theirs or be left out. If you have a life expectancy of more than 30 years, get to it. The race started some time ago, and it is in full swing. Do not be left out. It is not only for you but also for your children and their children. If you do not do it, what will be left for you and your loved ones?
Created: March 5, 2023, © Guy R. Fleury. All rights reserved.