The Speculist

Via GeekPress, Joanna Glasner has an interesting piece on Wired News about the advisability of investing in life extension technologies. She makes a cautious case that such investments could prove worthwhile, if entered into carefully, and she ends the piece with this thought:

Still, investors focusing on life-extending breakthroughs have time to be patient. If it all works out, and we really do live forever, that should provide plenty of time for a portfolio of biotechnology stocks to turn a profit.

Hmmm...if it does pan out, and we do live forever...or even, say, 500 years...what kinds of investments make sense? Einstein is reputed once to have quipped that compound interest is the most powerful force in the universe. For those of us who only get to piddle around with it for 50 years or so, that may be a little hard to believe. But given enough time -- and that's what life extension ultimately promises, more than enough time -- we gain some perspective.

Putting money into a 401K for a few decades is like accidentally leaving the garden hose on overnight. You get up the next morning, and yeah, it's pretty squishy back there, but no big deal. Given enough time, however, even a muddy little trickle like the Colorado river can carve out the Grand Canyon. Likewise, even a small amount of money, compounded at a modest rate over sufficient time, will yield a fortune.

Lazarus Long explained it like this:

$100 placed at 7 percent interest compounded quarterly for 200 years will increase to more than $l00,000,000—by which time it will be worth nothing.

Not too encouraging. But then again, old Woodrow Wilson Smith tends to be a little more cynical than he really needs to. Let's examine that "it will be worth nothing" thing. I can think of three possible reasons why that might be the case:

1. Two hundred years from now, you'll be dead. So the money is worth nothing to you. (Kind of a strange argument for a man who lived more than 1,000 years to make.)

2. Two hundred years from now, for whatever reason -- maybe you forgot? -- you will not care about the money, once again making it worthless to you.

3. Two hundred years from now, because of inflation, $100,000,000 just won't be worth that much.

For the sake of simplicity, we can skip the first two interpretations. Let's assume that life extension will work and that, 200 years from now, we'll still be interested.

How much will our money be worth? I'm going to simplify LL's formulation a bit and compound the interest annually rather than quarterly. At that rate, in 200 years the $100 dollars will have grown "only" to a little more than $70 million. That still sounds like a lot of money to me.

Of course, we need to adjust for inflation. (I'm not going to try to adjust for other possibilities, such as the decline of the dollar or its eventual replacement with another currency. Could happen. I doubt it. Anyway, we'll assume that, as savvy, long-term investors, we'll keep our money in the best currency to ensure long-term growth and stability. That's probably going to be the US dollar, anyway.)

Inflation is a very difficult thing to measure long-term. But if goods and services tended to go up, on average, 3% in price over the course of the 20th century, that is probably as good a guesstimate as any as to what we can expect to happen over the next 200 years.

So, not being an economist I do the math as follows:

If our $100 grew at 4% interest for 200 years, it would be worth about $123,000.

So Lazarus is wrong. Our investment isn't worthless, it's just "worth less" than it looks. In the year 2205, $70 million simply won't buy what it used to. What will it buy? Approximately what $123,000 will today. So over time, you have multiplied your initial $100 worth of spending power by a factor of more than a thousand.

Not too shabby!

Anyway, whoever heard of just investing a hundred dollars? The real trick would be to pay into your future wealth account over a period of years and then just let it go to work."Set it and forget it" as they say on the infomercials.

So let's put $600 a year into our account (that's a measly $50 a month) for twenty years and then revisit it after a total of 150 years has elapsed. After all, 150 years is just a drop in the bucket to someone with an indefinite lifespan.

By then, our initial disciplined investment will have grown to more than $160 million. After doing the inflation buzzkill adjustment, we see that in the year 2155, $160 million will get you right around what $3 million will today. That's not bad. Plus, if you can hang in there for another 50 years -- take a part-time job, write a book, I'm sure you can think of something to kill the time -- you will have a little more than $28 billion (yep, billion with a B) which will buy you approximately what $21 million (with an M) will today.

That's the ticket. And you know, even though you may not (to coin a phrase) live to see it, in a world where lives are getting longer, wouldn't something like this be worth a shot? At the very worst, you would be leaving a nice (NICE!) nest egg for your long-lived children or grandchildren.