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Is 250k where compounding takes over?
Old 07-02-2014, 10:17 AM   #1
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Is 250k where compounding takes over?

I have looked at others and how long it took them to reach each milestone.It seems to me that after $250k growth accelerates very fast.Now some of that is because of contributions,dividends reinvestments for sure,but is most of that because of compounding?I am at 208k now in investable assets and I am really pushing for $250k.It just seems it doesn't take as long once 250k is reached and it really motivates me to reach it.Any thoughts?
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Old 07-02-2014, 10:23 AM   #2
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Good question that I don't have the answer to, but will comment.

I'm not far behind you and hovering just over $200k. As for me, it seems that growth really started to accelerate right around $150k. I think a few other factors played into that too though - a strong market and higher than before contributions.

I don't know if there is that magic number, but common sense would lead me to believe that the more money you have, the faster it will compound I'd love to hear some other thoughts too.
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Old 07-02-2014, 10:41 AM   #3
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I don't know if there's anything magical about $250K, although there's an old saying, "You're first Million is the hardest', and you can apply that to any amount.

Awhile back, I did a chart showing my $100K thresholds, the date I hit them, and how long it took. I started keeping track in March of 1998, which was when I finally recovered from a bad divorce and was able to start investing again. Anyway, here goes...

3/1998: $0
1/2004: $100K
6/2005: $200K (some of this was proceeds from selling a condo, and I also started raiding some equity on my current home)
10/2006: $300K
10/2007: $400K
3/2010: $500K (the Great Recession took its toll, but I bounced back pretty quickly, also raided some more home equity and bought in, luckily, at the bottom of the market)
1/2011: $600k
3/2012: $700K
4/2013: $800K (would have happened sooner, but I was starting to cash in a bit, and pay down my HELOC, probably to the tune of about $30K)
12/2013: $900K (again, would have happened sooner, but I paid down about $20K on my HELOC)
As of yesterday's close, I hit $991K, so unless the market suddenly takes a turn for the worse, I'm sure I'll hit $1M any day now. If I hadn't paid down on that HELOC, I most likely would have hit $1M about 2-3 months ago.

And, I'm at the point now where the compounding, dividends, capital gains, etc, are more influential than additional investments. Even maxing out my 401k, with the company match, that only adds about $20,500 per year. Add a Roth IRA to that, for another $5500, and we're only talking $26,000, which isn't going to have much immediate impact on a ~$1M balance.

However, this year, to fund my Roth, I used money from an after tax account, so it was transferring money that was already invested, versus adding new money. So this year my added contributions are only about 2% of the total balance. The additional contributions do still add up, over time though. And in a down market, say a 50% loss like I had in the Great Recession, they help even more.
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Old 07-02-2014, 10:42 AM   #4
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It's just math and perception. No magic.

$10K doubled becomes $20K. Not really a big deal, right? To a beginning investor it's nice though.

$250K doubled becomes $500K. Now we're talking, but it takes the same strong market to make $250K double as it did $10K. In a stagnant market, $250K is going to linger just as $10K does. The only difference might be that you can diversify $250K better.

Like I said, mostly it's perception. If the market goes up 5% one week, on $10K you'll just see a $500 gain. Nice for some, maybe not for you. One $250K, it's $12.5K. Probably a big deal for you, but chump change for Warren Buffet.

In some ways it might be harder with more money. If you're able to contribute $5K/year, you will see significant changes to that $10K portfolio even in a flat market, but very little change to a $250K portfolio in the same conditions.
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Old 07-02-2014, 10:47 AM   #5
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It's all relative. Keep up the battle no matter what, it will be worth it.

I remember in 03/2011 I was getting financing for a rental property. I had to fill out financial statements. My net worth was just over $1M back then, including my home equity in my personal house. And I was stretching a bit then.

Today, just three years later, I have over $1M in investable assets, and another $1.3M in property equity, so ~$2.3M and that's conservative. Two additional paid off properties helps.

Compounding helps, but at the lower amounts your contribution makes more of a difference. If I put in $10K, I can barely notice, it's only 1%. If you do it, it's adding ~5%.
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Old 07-02-2014, 11:27 AM   #6
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Quote:
Originally Posted by Andre1969 View Post
I don't know if there's anything magical about $250K, although there's an old saying, "You're first Million is the hardest', and you can apply that to any amount.

Awhile back, I did a chart showing my $100K thresholds, the date I hit them, and how long it took. I started keeping track in March of 1998, which was when I finally recovered from a bad divorce and was able to start investing again. Anyway, here goes...

3/1998: $0
1/2004: $100K
6/2005: $200K (some of this was proceeds from selling a condo, and I also started raiding some equity on my current home)
10/2006: $300K
10/2007: $400K
3/2010: $500K (the Great Recession took its toll, but I bounced back pretty quickly, also raided some more home equity and bought in, luckily, at the bottom of the market)
1/2011: $600k
3/2012: $700K
4/2013: $800K (would have happened sooner, but I was starting to cash in a bit, and pay down my HELOC, probably to the tune of about $30K)
12/2013: $900K (again, would have happened sooner, but I paid down about $20K on my HELOC)
As of yesterday's close, I hit $991K, so unless the market suddenly takes a turn for the worse, I'm sure I'll hit $1M any day now. If I hadn't paid down on that HELOC, I most likely would have hit $1M about 2-3 months ago.

And, I'm at the point now where the compounding, dividends, capital gains, etc, are more influential than additional investments. Even maxing out my 401k, with the company match, that only adds about $20,500 per year. Add a Roth IRA to that, for another $5500, and we're only talking $26,000, which isn't going to have much immediate impact on a ~$1M balance.

However, this year, to fund my Roth, I used money from an after tax account, so it was transferring money that was already invested, versus adding new money. So this year my added contributions are only about 2% of the total balance. The additional contributions do still add up, over time though. And in a down market, say a 50% loss like I had in the Great Recession, they help even more.
Ok,I can accept the fact there is nothing magical about reaching 250k.But I will still feel a tremendous amount of accomplishment and satisfaction once I reach it.It will only get easier from there.That point gets closer with each passing day.
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Old 07-02-2014, 11:56 AM   #7
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Ok,I can accept the fact there is nothing magical about reaching 250k.But I will still feel a tremendous amount of accomplishment and satisfaction once I reach it.It will only get easier from there.That point gets closer with each passing day.
Oops, sorry, that's not what I meant at all. $250k is a definitely a goal to be proud of reaching. Not too many people can do it. What I was trying to say is that I don't think there's anything that really happens, with regards to compounding, at that point. The dollar amounts will rise or fall faster, depending on the market, because you have more money. But on a percentage basis, nothing happens. If you're just depending on compounding, it's going to just as long for $10K to double, as it will for $250K, or $1M or any amount.

But, each threshold will come more quickly, because of compounding, unless the market does something bad. To get from $250K to $500K, your portfolio has to double, but to get from $500K to $750k, it only has to rise 50%. And then from $750k to $1M, only 33%, and so on and so on.

But, that's going to hold true for any milestone you choose, whether it's $10K, $250k, or whatever. It's just the old saying, "It takes money to make money"

And again, congratulations on closing in on the $250K mark. Sorry if I made it sound like no big deal...that was not my intention.
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Old 07-02-2014, 12:04 PM   #8
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Oops, sorry, that's not what I meant at all. $250k is a definitely a goal to be proud of reaching. Not too many people can do it. What I was trying to say is that I don't think there's anything that really happens, with regards to compounding, at that point. The dollar amounts will rise or fall faster, depending on the market, because you have more money. But on a percentage basis, nothing happens. If you're just depending on compounding, it's going to just as long for $10K to double, as it will for $250K, or $1M or any amount.

But, each threshold will come more quickly, because of compounding, unless the market does something bad. To get from $250K to $500K, your portfolio has to double, but to get from $500K to $750k, it only has to rise 50%. And then from $750k to $1M, only 33%, and so on and so on.

But, that's going to hold true for any milestone you choose, whether it's $10K, $250k, or whateamver. It's just the old saying, "It takes money to make money"

And again, congratulations on closing in on the $250K mark. Sorry if I made it sound like no big deal...that was not my intention.
I am very grateful you take the time to give not only to me but others your insight.I look at what you have accomplished and it motivates me to do better.As far as me reaching 250k,believe me I will be so proud everyone on this forum will know and can celebrate it with me when it happens.
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Old 07-02-2014, 01:47 PM   #9
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Another thing I would like to add is from the limited cases available here on the forum to study it takes on average 30 months to go from 100k to 200k.That's how long it took me.It took me forever to reach 100k,much longer than the others.The 2008-2009 bear market slowed me down.Plus I don't make as much as some of the others on this forum.So if I am lucky and roughly in line with the cases I have looked at,I may reach 300k sometime in 2016,and 400k sometime 2018,if I am lucky.From there unless there is a big bear market,it should take less than 2 years for each additional 100k.Now I know I made a few assumptions,but I don't think I am too far off.
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Old 07-02-2014, 02:27 PM   #10
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I don't think $250k really creates a "magical" level. It really comes down to where do your contributions no longer make a significant difference to your assets. My portfolio is safely above $1MM and my maxing out my 401k doesn't make much of a difference in my end of year total. I was also saving beyond this level from my salary which also didn't really tip the scale very much. About 5 years ago, I started emphasizing enjoying my employment based safe cash flow with extra and nicer vacations. Even with that, I'm still maxing out my 401k and saving some free cash.

I don't feel the pinch of pulling money out of savings now and I know the impact on my final nest egg won't be significant. I'm not sure if my miser tendencies will kick in when I'm no longer getting the paycheck and make me more reluctant to spend even though every calculator I've run says I'm in excellent shape.
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Old 07-02-2014, 02:30 PM   #11
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Another thing I would like to add is from the limited cases available here on the forum to study it takes on average 30 months to go from 100k to 200k.That's how long it took me.It took me forever to reach 100k,much longer than the others.The 2008-2009 bear market slowed me down.Plus I don't make as much as some of the others on this forum.So if I am lucky and roughly in line with the cases I have looked at,I may reach 300k sometime in 2016,and 400k sometime 2018,if I am lucky.From there unless there is a big bear market,it should take less than 2 years for each additional 100k.Now I know I made a few assumptions,but I don't think I am too far off.
There's always the "rule of 72." Divide 72 by the expected or hoped for portfolio return. As an example, a 10% return would double your assets in 7.2 years. Going from $100k to $200k in 30 months is either with an excellent return or with additional savings.
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Old 07-02-2014, 02:46 PM   #12
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There is a perceptual thing that goes on even though from a math viewpoint compounding is compounding. Let's say you start off earning $50k a year and have no savings and begin saving 15% of what you make. Let's say you get 5% annual raises and your investments earn 8% and you increase your savings for 1/3 of any raises and spend the other 2/3rds

Between years 5-6, your savings is equal to your annual earnings. Your savings is equal to 2, 3, 4, 5 and 6 times your earnings between years 9-10, 12-13, 15-16, 18-19 and 20-21, respectively.

Note that the time period for each multiple of earnings steadily decreases from 5.5 years to 4, 3, 3, 3 and 2 years respectively as a result of increased savings and compounding.

So even though compounding is just straight math, as you have more and save more you hit milestones quicker, particularly if your point of reference is what you earn or what you spend.
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Old 07-02-2014, 02:55 PM   #13
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When you can start seeing portfolio growth that is larger than your contributions, that is exciting. When you just need 4x or 2x more to retire, that's exciting. And it is exciting that you can expect it to double in less time than it took to collect it all in the first place. Certainly $250k is right in that region, where "suddenly" you can see your portfolio working for you.
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Old 07-02-2014, 03:23 PM   #14
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When you can start seeing portfolio growth that is larger than your contributions, that is exciting. When you just need 4x or 2x more to retire, that's exciting. And it is exciting that you can expect it to double in less time than it took to collect it all in the first place. Certainly $250k is right in that region, where "suddenly" you can see your portfolio working for you.
I would agree that it's exciting to see your account start to move "under its own power". It's somewhat of a precursor to the feeling one gets when hitting FI. You begin to treat yourself a little more, hopefully on things that will make your life easier (and perhaps more productive, thereby increasing the growth velocity of your account).
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Old 07-02-2014, 03:50 PM   #15
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I was looking through my spreadsheet to see which years I had bigger growth in my (taxable) account than I had new money from contributions to the portfolio. In 1995 that happened for the first time. It would happen again in 1997 and 1998. In the 2000s, it happened in every year from 2003 (when I pierced the $250k mark) through 2007 and 2009. In this decade, it happened in 2010, 2012, and 2013. So it is not a rare event in the last 19 years.
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Old 07-02-2014, 04:17 PM   #16
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Congrats on your accomplishments so far!

I don't have exact dates like Andre; but, from what I do have:

Early 2004 - $250K
April 2007 - $500K (the first time). So, about 3 years
Mid 2009 - back up to $500K
December 2012 - hit $750K; so about 2 1/2 years
February 2014 - $1M, about 13 months

And, that factors in "life", which means a few years of not saving as much for a variety of reasons (the biggest of which is that we bought a cabin in 2010).
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Old 07-02-2014, 04:41 PM   #17
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Never thought about "250k" being a key level. Then after your post looked at my spreadsheet showing my history of balances by year.

Interesting my history starts at $254,000 after 12 years of saving.

After another 12 years the balance has grown to $1.5 million.

So the math is what makes it happen but you can really start seeing it when it builds upon itself.

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Old 07-02-2014, 04:58 PM   #18
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There is something special about those $250,000 milestones I think... not in terms of the math/compounding really because when it really "takes off" is all relative... but psychologically. For me $250,000 was a major milestone, and we actually went out to dinner when we hit $500,000. $750,000 was pretty cool, but for some reason I started looking forward to $1 million at that point. When I look at my retirement projection, and how the earnings really begin to take off in future years... that is a fun thing to see.

Congrats on your success so far!
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Old 07-02-2014, 05:07 PM   #19
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Here are some end of year number for my half of our retirement assets. Apparently I decided that 2008 and 2009 were so bad that I did not record the end of year, Oh Yea, that was divorce number two. Fun times The markets have been great the past couple of year and have made a major impact. I'm still working and have ridden the ups and downs and stayed primarily in equities. And now with wife number three who is truly wonderful and dear and sweet and like minded it makes retirement a real possibility next year.

2005 $696,142
2006 $894,359
2007 $945,724
2010 $932,005
2011 $910,933
2012 $1,090,636
2013 $1,422,122
2014 $1,583,941
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Old 07-02-2014, 05:45 PM   #20
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So of course I had to go back and look at my records. It looks like it took me around 9 years to go from $250,000 to the 1 mil goal, that's with market ups and downs etc. I would say only about 1/3 is invested in the stock market. It does not include my residence. Looks similar to what others have posted. Interesting since obviously we all come from different places in life. Or like others have said, it's in the math.
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