Is 250k where compounding takes over?

[rayvt]

It's due to Bedford's Law, A.K.A. "First-Digit Law".

To get from 100 to 200, you have to double (i.e. 100% gain).
To get from 200 to 300, you only have to "half again" (i.e. 50% gain).
To get from 300 to 400, takes 33% gain.
... etc...
To get from 900 to 1000, takes only 11% gain.
Then you start all over again, buidling up from 1000 to 2000.

So the good news for the OP is that it gets faster from here -- until you hit $1M.

 

[UnrealizedPotential]

It's due to Bedford's Law, A.K.A. "First-Digit Law".

To get from 100 to 200, you have to double (i.e. 100% gain).
To get from 200 to 300, you only have to "half again" (i.e. 50% gain).
To get from 300 to 400, takes 33% gain.
... etc...
To get from 900 to 1000, takes only 11% gain.
Then you start all over again, buidling up from 1000 to 2000.

So the good news for the OP is that it gets faster from here -- until you hit $1M.

Great explanation.It does get easier.It's amazing how hard it is to get started to the first 100k.Then after that is accomplished it starts growing and building momentum into a snowball.

 

[Andre1969]

It's due to Bedford's Law, A.K.A. "First-Digit Law".

To get from 100 to 200, you have to double (i.e. 100% gain).
To get from 200 to 300, you only have to "half again" (i.e. 50% gain).
To get from 300 to 400, takes 33% gain.
... etc...
To get from 900 to 1000, takes only 11% gain.
Then you start all over again, buidling up from 1000 to 2000.

So the good news for the OP is that it gets faster from here -- until you hit $1M.

A few days ago I changed the scale on one of my graphs, because my total was getting very close to the $1M mark. But, for the very reason you stated, I only changed the top of the range to $1.1M, rather than $2M. It makes my $995,381 look a bit more impressive. .

Another thing that was kinda cool though, was getting to the point that I changed the minor tick marks from $50K intervals to $100K intervals. Seems like not that long ago, I had $10K intervals.

Oh, as for milestones of days gone by, I remember once upon a time, getting excited when my portfolio went up by a whopping $500 in one day. That would have been the late 90's, and in those days, it really did seem like a big deal. My weekly takehome from my main job was under $400, unless I worked overtime. At my second job delivering pizzas, I could bring home $500 or more on a really good week...but that took its toll, both on my body and on my car. My mortgage (PITI) was about $792. And when I finally bought a new car in late 1999, its monthly payment was $347.66.

So, in doing those comparisons, a $500 daily jump in NW seemed like a really big deal. And it was, because I didn't have a whole lot saved up yet, so it would take a pretty big market jump to see that kind of rise.

Nowadays, a slight blip in the market can make my NW jump by several thousand bucks. I'll sometimes get into one of my jaded, it's-no-big-deal moments, but then I'll make myself snap out of it by calculating how many weeks of takehome pay, mortgage payments, or whatever that would equate to. And that makes me a lot more appreciative.

 

[RobLJ]

Anecdotal, but
Jan 1996 31K
Jan 2004 270K
Jan 2007 560K
Jan 2010 770k
Jan 2012 975k
Jan 2014 1400K

YMMV and we started saving close to the max around 2010.

It stuns me when the daily portfolio gains exceed 5 figures, although the next day usually cannibalizes the gains.

 

[ikubak]

It took us about 15 years of saving to get to 300K. In the ten years since then, we have added 1.4 million to the 300K. Once your investments get to the point that they grow or shrink (anyone remember 08-09?) more than the amount of $ you earn in a year, then the investments seem like they take on a life of their own. The amount we save each year no longer has a huge impact on our balance.

 

[dallas27]

It took us about 15 years of saving to get to 300K. In the ten years since then, we have added 1.4 million to the 300K. Once your investments get to the point that they grow or shrink (anyone remember 08-09?) more than the amount of $ you earn in a year, then the investments seem like they take on a life of their own. The amount we save each year no longer has a huge impact on our balance.

Please help me quadruple to quintuple my savings in ten years. I'll do unspeakable things for your secret.





Sent from my iPhone using Early Retirement Forum

 

[gozer]

For me it wasn't a specific number, it was losing the race with my money. Throughout the 90's I always wanted to contribute more new money than my already invested money earned. Me competitive, not at all.

I started saving 9% (incl 3% match) of my annual household income and increased it every year to stay ahead of investments. By 2003 I was saving just over 50% and lost the race for the first time. Our income had hit a plateau and I was not willing to spend even less to save more. We were pretty comfortable at that point. So I had to concede to the power of compounding interest.

 

[Major Tom]

So I had to concede to the power of compounding interest.

That is a happy way to lose a race

 

[skyvue]

You're good, Sky, you already know your portfolio's worth next July. I'll believe you...I want our NW to keep trucking up. Now, more seriously, is this your as one-person's portfolio? If so, you've done great. We have similar trajectory of growth as yours, but with dual income (and two kiddos) and very similar age group.

Thanks for pointing out the error. Last two dates should have been 2013 and 2014! (Not letting me edit that for some reason?)

Yes, one person portfolio. Been divorced since 2000. One child who is starting college in about 5 weeks. Plan to FIRE in 4 years, maybe sooner as I am not sure I can take my job for that much longer.

 

[dvalley]

For me $500k is going to the first 'critical mass' because that's when it will generate more than what I'm trying to invest this year (and hopefully in the future too). The next 'critical mass' will be when it generates equivalent of what my expenses are. The final 'critical mass' will be when it matches what I make in a year but I hope to ER before that. On some days I just want to push the fast-forward button and be 10 years into the future...but then I'll be 10years older too. I guess you really can't have your cake and eat it too

 

[Totoro]

2006: 20k
2007: 32k
2008: 50k
2009: 100k
2010: 170k
2011: 250k
2012: 340k
2013: 357k
2014: 490k
Today: 595k

2007 - 2011 are estimates. 2012 was a low income year, and past two years I had some inheritance money in there as well.

Looking at it from a distance I wouldn't say compounding is taking over just yet, but it does give a serious tailwind.

 

[aida2003]

On some days I just want to push the fast-forward button and be 10 years into the future...but then I'll be 10years older too. I guess you really can't have your cake and eat it too

Glad to hear I'm not the only having such thoughts quite frequently

 

[WannabeRetired]

It really is hard not to constantly adjust the spreadsheet and be thinking of some future date when you'll have $X saved. Time flies plenty fast, but for some reason it's still a struggle to live in the now.

 

[aida2003]

2006: 20k
2007: 32k
2008: 50k
2009: 100k
2010: 170k
2011: 250k
2012: 340k
2013: 357k
2014: 490k
Today: 595k

Are these YE or mid-year balances? If the former, I do not know how to interpret 2014 and "Today"
I am quite positive our portfolio balance in 2009 ended lower than the balance in 2008 even with maxing out our 401k, Roth IRAs, and some taxable investing. OTOH, we were buying low in 2009.

 

[haha]

It's a mathematical reality that compounding starts the minute you have invested savings that you are not going to raid. There is no magic number. There appears to be a threshold because humans do not think geometrically; we think arithmetically unless we train ourselves away from this.

Ha

 

[FIREd]

For us there was no critical threshold, just a surprisingly smooth and vaguely exponential rise. Since 2001:

 

[haha]

For us there was no critical threshold, just a surprisingly smooth and vaguely exponential rise. Since 2001:

Attractive curve!

 

[FIREd]

Attractive curve!

May it remain attractive for a while longer...

 

[Totoro]

Are these YE or mid-year balances? If the former, I do not know how to interpret 2014 and "Today"

All of them january 1st

 

[SkeetShooter]

Great comments on this thread. I think that there may be something to the $250K threshold. As I look back over my NW trends, $250K is really when it started accelerating (except for 2008 & 2009). I can also attest to what was stated earlier that it felt like it growth slowed down once the $1M threshold was crossed (although the math contradicts that feeling). It felt like it started accelerating again after $2M. Nevertheless, if I had it to do over again, I would earn my second million first, as it was considerably easier than my first million!

 

[Rustward]

It would be interesting if those who report periodic worth figures would report their contribution rates and withdrawal rates as well. If, for example, I went from 40K to 340K in one year, and 340K of it was net contributions or inheritance, or whatever else, what would that mean?

Edit to add: We also need to use a standard definition of net worth.

 

[rayvt]

If, for example, I went from 40K to 340K in one year, and 340K of it was net contributions or inheritance, or whatever else, what would that mean?

It would mean that you're in the running for a Beardstown Ladies award.

 

[NgineER]

Add some more data?

For us there was no critical threshold, just a surprisingly smooth and vaguely exponential rise. Since 2001:

Nice curve! Can you add some more data to it to help illustrate compounding vs returns and contributions?

 

[panacea]

With many of you posting your totals, I had to look back at our savings over the years. It won't be particularly useful to the group, because I didn't even bother to take the measurement at the same time each year and my savings rate has increased over time, especially in the last few years since my income has also increased quite a bit. But FWIW, I found it pretty interesting that it took me just over 8 years to save my first $250,000. My next $250,000 took about 5 years and the $250,000 after that only took about 3 years. I haven't hit $1 million yet but I project that to take about 2 years from the 750,000 mark. It sure helps when the stock market cooperates. Much more fun to watch the growth in the last few years.

 

[NgineER]

It would be interesting if those who report periodic worth figures would report their contribution rates and withdrawal rates as well. If, for example, I went from 40K to 340K in one year, and 340K of it was net contributions or inheritance, or whatever else, what would that mean?

Started roths while in grad school, but not significant amounts. Started working 8/1/2007 and bought a house at age 32. Numbers reported below is without primary residence and I do not own any income properties yet. Wife worked some of these years which I put a comment for. Started to really LBYM in 2012 when we decided for DW to be SAHM (ER) sometime that year.

Date                Net worth         Contributions          Returns            Comments
12/31/2007           $76,436             $15,170          Not Recorded          Bought house and worked four months
12/31/2008           $82,797             $47,190            -$40,829            DW Worked 6 months
12/31/2009           $178,477            $47,820             $47,830            DW Worked
12/31/2010           $295,699            $49,090             $68,092            DW Worked
12/31/2011           $343,509            $50,200            -$2,320             DW Worked
12/31/2012           $491,088            $64,093             $83,405            DW Worked 3 months and we relocated
12/31/2013           $733,639            $104,036           $138,596            Bought new house
07/01/2014           $841,991            $42,225             $66,095            YTD results

I can't say that there is a clear pivot point, but as you get closer to your goal, it clearly goes faster. This bull market has helped getting me to catch up with the early savers. I hope to break $1MM the year I turn 40, expecting to contribute another $100k and hopefully have some positive returns during the next 18 months.