Will your children thank you for this – or blame you?

Every month I buy a fistful of silver coins for my 18-month-old son.

Not as toys. For starters, he’d try and eat them. But as he gets older and starts to have some concept of money – or perhaps treasure – I’m going to show the ever-increasing stash with him.

As of December I’ll have to double how much I buy. We have another boy on the way then. I intend to take the same approach: buying physical gold and silver as a kind of savings account.

My wife thinks I’m a little mad. She’d rather we just set up a standing order into a savings account. I’m not against this. But gold and silver have two major benefits. One financial, one much more important.

In a financial sense, this is money the kids won’t be able to actually spend for roughly two decades. I think interest rates will remain below inflation for a lot of that time, destroying the value of cash savings. And my biggest fear is a full-blown currency crisis, which would smash savers.

Gold and silver are an antidote to that. They’re the only things I trust to hold their value – at the very least – over that time period.

But more importantly they’re real. Tactile. You can hold them in your hand. I think that’s important. Particularly when teaching young children about what money “is” and as a physical representation of saving. The pile gets bigger every month. You can watch it grow.

It occurred to me last week, though, that I might be making a mistake.

Gold and silver are a great base. But there are other things out there that could make a much more significant difference to my family. Maybe I’m not shooting high enough. Maybe I should be aiming for more.

I’m not a millionaire. But could I make my children that well off, given the right moves today?

That’s what I want to explore. I think I have an idea for how I’d do it. To explain what it is, I need to take you back in time.

Let’s turn the clocks back three decades. It’s 1989. The world stands on the cusp of extraordinary change, brought about by improvements in technology.

The engine of what is to come is actually a very simple idea. Computing power is doubling every 18 months. Put another way, the cost of computing power halves in the same time period.

This simple idea, known to history as Moore’s Law, is about to turn the world on its head.

It’ll lead to the emergence of the internet… the personal computer… the decoding of the genome… the smartphone… social media… and disrupt virtually every industry on the planet while doing so.

Not only that, it’ll help forge some of the greatest fortunes in the world. It’ll spawn a generation of businesses built entirely around the ever-increasing power of the microprocessor. Hardware companies will emerge to build out the infrastructure. Software companies will follow them, tapping that bandwidth to build enormous business empires.

Companies that don’t even exist in 1989 will, within a generation, supplant the energy, banking and industrial giants that have dominated the 20th century. Companies like Microsoft. Intel. Amazon. Apple. Google. Facebook. By the way, those six companies are worth a combined $4.47 trillion today.

Why?

That’s an easy one. Each of those businesses tapped into the exponential growth in computing power. Their business models and practices may have differed beyond that.

But ultimately they all prospered by attaching themselves to an exponential trend… and clinging on as it triggered radical change and rapid wealth creation.

Here’s a harder question: why did so few people – beyond a few visionaries – see that coming?

I can look to my own family. I was born in the 1980s. My parents saved money for my future (in a savings account at our local building society, not in the form of gold and silver). But for whatever reason they didn’t chose to invest anything. Certainly not in anything high tech. (Unless they’re secretly fabulously wealthy and have been keeping it from me.)

I think I know why that is. It’s a common mistake. I think I’m guilty of making it. Maybe you are too. It’s something I don’t think my children would forgive me for.

The mistake? Underestimating exponential growth. Or rather, not comprehending just how rapidly exponential growth can change the world.

Our brains aren’t wired to think exponentially. We think in linear terms. This makes perfect sense. Most things don’t grow exponentially. Most of what we observe in the world is incremental. Cars don’t increase their efficiency or range as technology improves. Food prices don’t decrease like the price of technology. Clothing, energy prices, transport, housing. It all increases or decreases incrementally, not exponentially.

Mistaking one for the other can be a terrible error. Particularly when you look at opportunities missed in the financial markets.

Not every tech company has become a world-dominating giant. Exponential growth is not a guarantee of success. But those companies that do succeed can – over the medium to long term – grow faster than almost anything else out there.

Put simply, hitching a ride on an exponential growth trend could be the best way of generating extraordinary wealth long term. But most people don’t do this. They think incrementally, not exponentially.

And we’re still seeing exponential growth trends in the technology sector today. I actually spent the best part of a year meeting with some of the most important people within these exponential trends whilst writing my book, aptly called The Exponentialist.  

Which brings me back to my family.

Which exponential technology trends will reshape the world in the next 20 years? Based on today’s trends and the accelerated rate of progress, it is not hard to imagine a world built around quantum computing, 3D printing, genetic editing, super-powered artificial intelligence, nano-technology, and even fusion energy.

If you scoff at those predictions, just think of the pace of change we’ve seen in the last three decades. Now remember that exponential growth means we could see a similar magnitude of change in the future compressed into an even shorter time period.

I can’t predict precisely which businesses will dominate those new industries. But I can predict how my family will respond when I tell them I chose gold and silver over exponential growth.

Gold and silver may be real wealth. Real money. And they will likely hold their value long term.

But neither are exposed to exponential growth trends. Will my children blame me for making that mistake? The same mistake people have made throughout the last 30-odd years?

Or will they thank me for seeing what most people don’t – that exponential growth is the most powerful force in the world – and tapping it may well be the secret to generating extraordinary wealth…?

More tomorrow.

Best,

Nick O’Connor
Publisher, Exponential Investor

Category: Commodities

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