Compound interest goes in both directions

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There is no shortage of writing and punditry about the power of compound interest.

As usual Naval has a pithy tweet about it:

I have been thinking about this a lot lately —  in the context of work, health, family, finances etc.  And more specifically, how compound interest is not just something that works for you, but it’s also something that can (and more than often, does, speaking globally) work against you.  I think of it like this:

Ways that compound interest can work for you:

  • You eat well and exercise every day – each month you are x% stronger and healthier
  • You’re able to save – each month you’re x% wealthier
  • You invest in friendships – each month they get x% stronger
  • You work hard, help your teammates, and contribute to your team’s success – each month you become x% more valuable
  • etc.

Ways that compound interest can work against you:

  • You get stuck in a debt spiral and every month are x% farther in the hole
  • You feel overwhelmed at work and each month get x% farther behind on your inbox and your projects
  • You ignore your friends and each month get x% more distant
  • You’re around bad people and bad things happen – you go to jail and meet more bad people, and more bad things happen
  • etc.

In other words, when things are good, they tend to get better.  And when things get bad, they tend to get worse.  This is a horrible paradox.  (Reminds me a bit of The Pursuit of Happyness which illustrated this beautifully and painfully).  I would argue that “health”, defined broadly, is about getting to the right side of the curve, where your efforts are not only making you net better, but they are contributing to potential exponential improvement thanks to compounding interest.  And getting away from the left side of the graph, where every day, every moment, has the potentially of compounding the badness.

Last week, I was talking about this with Darsh, focusing on the importance of helping people (ourselves and others) get to the right side of the curve.  Given the dynamics here, it is often a generational issue.  For example: my great grandfather was murdered in Russia for being a Jew.  That’s about as bad as things can get – getting murdered for being who you are.  My grandfather immigrated to the US, penniless, and died of cancer at a very young age.  My father grew up on welfare, in a difficult home, but managed to graduate high school, learn to program, and then ultimately start his own business.  I went to college (first one on that side to graduate) and now work at an amazing place in an amazing industry.  The climb from absolute terror, to extreme poverty and difficulty, to relative comfort has taken at least 4 generations.  And even so, I didn’t learn about the compounding nature of money and other wealth as a kid, and am just working on teaching it to my kids now.

A question, then, is how to short-circuit the cycle of negative compounding interest — getting at least “to zero”, so that the riptide is no longer pulling you under.  Because if you can’t do that, it’s very hard to start to benefit from positive compounding. It is for this reason that I am a fan of universal basic income and other systems that give people a boost.

One thought on that is, to work on positive compounding interest wherever you can — that might be work, health, savings, relationships or something else.  That’s why I am so excited about our investment in Stash – they are singularly focused on helping individuals achieve compounding financial interest through saving and investing – even just with $5.

With that, I will hit publish and hope for some initial returns on intellectual capital in the form of this blog post….

just_work = true

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One of my former colleagues, Rob Marianski, and I used to have a running joke — we would be building and debugging something, and he’d finally say, “Oh, so you just want me to set just_work = true?”.  That was over 10 years ago, but it still gets me every time for some reason.  (as… Read more »


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Ryan Caldbeck is on fire on Twitter right now.  Ryan is the CEO of our portfolio company CircleUp, and he just joined Twitter for the first time earlier this year and is, I may say, feeling very comfortable in the medium.  Over the weekend he put up a great diagram-oriented tweetstorm with a bunch of gems… Read more »

Digital scarcity

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As readers of this blog can tell, I’ve been spending a lot of my time recently focused on cryptonetworks and blockchains, and in particular, working through the complex legal and regulatory issues involved. Explaining what cryptocurrencies, cryptonetworks and blockchains are is hard to do.  As Naval recently said on twitter: It is the mark of… Read more »

Zombies eating kitties

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On Tuesday we announced our investment in Cryptokitties, and, as you might expect, received a combination of enthusiasm and skepticism in response.  Bitcoin and cryptocurrencies already sound ridiculous to most people, and virtual “real” kittens made out of cryptocurrency take it a step further. But, as with many new technologies, these first use cases just… Read more »

A bigger container

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An idea I like from Zen Buddhism is becoming a Bigger Container.  My understanding of the idea is this: There are a lot of difficult/bad/sad/scary things going on in the world, ranging from serious global issues, war, famine, terrorism, etc; to things in your city like homelessness or joblessnes; to things in your family, like… Read more »

Cryptonetworks and why tokens are fundamental

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“Cryptonetworks” can help us build a more competitive, innovative, secure and decentralized Internet.  “Tokens” (also known as cryptocurrencies or cryptoassets) are integral to the operation of cryptonetworks.  As we design new laws and regulations in this emerging space, we should keep these concepts in mind, beyond the financial aspects that are today’s primary focus. In… Read more »

Teaching kids to invest

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I’ve written a bunch about why it’s expensive to be poor, why we need better tools for managing money, and how to move from a labor mindset to a capital mindset.  A big takeaway for me is that accumulating wealth isn’t just a functional activity, it’s a mindset that needs to be learned, and taught…. Read more »

How to make big problems small and small problems big

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Avoidance is to be avoided. — Nick Grossman (@nickgrossman) February 22, 2018 I’m on a plane right now.  I always find plane/train rides to be some of the best times to focus and get work done.  On this trip, I managed to get two “monkeys” off my back — little tasks that have been lingering… Read more »

You need a budget

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I’ve written for a long time about my desire to re-build personal finance infrastructure in ways that benefit people with the least money.  We see new personal financial products all the time targeting high value customers, but it still feels like they are ignoring a huge, and important part of the market: people scraping by… Read more »

The weakest link

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We have spent a fair bit of time over the past year working on security at USV and across the USV portfolio.  Anyone who has spent time working on personal or corporate security — and in particular information security, knows that there are a million ways in, and you’re never “finished”. Fred wrote a bit… Read more »

From a labor mindset to a capital mindset

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I’ve been quiet on the blog lately — writing is one of those things that’s hard to build a habit for, but always pays big dividends when you do it.  Every time I’ve gotten into a good blogging rhythm I am undoubtedly surprised by the feedback I get (good and bad!), but more importantly, by… Read more »


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The week before last, we lost a dear friend to cancer.  Deb was an incredibly sweet, caring and giving person.  The memorial service last weekend was held at the elementary school where she taught first grade for the past 15 years.  The room was decorated — to the hilt — with hearts, butterflies, and ribbons,… Read more »

Changing seasons

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Today is the last day of September, and I’m happy and relieved to see it go. I’ve been holding my breath. September is a violent month.  That may seem like a ridiculous thing to say, but I think there’s some truth in it.  Something about the end of the summer and the abrupt change to… Read more »

Labor Day: Project Repat

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Yesterday, in the process of cleaning out my closet and donating a bunch of old clothes, I did something I’ve wanted to do for a long time: got going creating a t-shirt quilt for my old “sentimental” t-shirts.  I’m a bit of a t-shirt hoarder, especially when it comes to shirts that memorialize some special… Read more »

Optimizing for energy

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In the world of startups and investing and ideas, things are always chaotic and fluid, and as such a key skill is to somehow cut through the noise and find focus.  That’s on a micro level, like what do I do for the next five minutes, and on the macro level, like am I (or… Read more »

On the blockchain: platform first or app first?

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I was emailing with a friend recently, who asked: “On the web, in order to build a platform you first need a hit app. Do you think this dynamic is different in blockchain?” It’s a great question, and one I have been thinking about a lot lately.  First, let’s unpack the idea that the way… Read more »

Who should police content on the Internet?

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The beauty, and the danger, of the internet is that it’s open to everyone.  Anyone can put up a website, about pretty much anything.  This “open platform” is an amazing thing, and means that innovation can come from all corners, without barriers or gatekeepers.  It also introduces new challenges for how to deal with the… Read more »