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Is compound interest stronger than the Force?
Old 01-02-2020, 05:58 PM   #1
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Is compound interest stronger than the Force?

Long-time lurker. I know there's been threads about this but just curious how long it took everyone to get to milestones along the way. 1 million? 2 million? then 3 million? then 4 million? and more?

Looking at my finances, I hit 1/2 million savings in 3Q 2010 (10+ years) and then a million in 3Q 2016 so 6 years. Then hit 1.5m in 3Q 2019 so just 3 years and now at 1.6m at year-end. I save about 12-15% of my income that goes into an all-stock market mutual fund so decent savings but not great. I am just amazed at how it continues to grow so consistently. Sometimes up and sometimes down but eventually it always has been going up. Just wanted to know the growth pattern that everyone has had to get to their magic number.
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Is compound interest stronger than the Force?
Old 01-02-2020, 07:43 PM   #2
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Is compound interest stronger than the Force?

My results are very similar. I learned about compound returns in a finance class in college and made some spreadsheets. Sure enough the math worked. Now to see it happen in real life is simply amazing.

Note: In the 30 years I have been out of college the S&P 500 has an annualized return of 9.88%. If it keeps up the portfolio will double again in 10 years (assuming I take out 3% and earn 10%).

Mind blowing stuff.
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Old 01-02-2020, 08:03 PM   #3
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Foe me it wasn’t compound interest, it was stock options in a tech company. Nada and then an explosion, so more of a step function.
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Old 01-02-2020, 10:48 PM   #4
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Note: In the 30 years I have been out of college the S&P 500 has an annualized return of 9.88%. If it keeps up the portfolio will double again in 10 years (assuming I take out 3% and earn 10%).

Mind blowing stuff.
Is that a common assumption that portfolios double in 10 years? I had that same assumption and have no idea why I had it. That's why I'm hoping to hear how others have done on their journey to ER.
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Is compound interest stronger than the Force?
Old 01-02-2020, 10:54 PM   #5
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Is compound interest stronger than the Force?

Rule of 72, the most important financial rule of thumb. Divide 72 by the compounded rate of return to determine (approximately) how long it will take for an investment to double.

At 7%, 10 years. At 10%, 7 years.

Was a useful rough planning tool when in the accumulation phase, and good for “bar napkin” calcs with your SO
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Old 01-02-2020, 11:48 PM   #6
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we never had actual milestones. just socked away as much as we could between 1982 and 2015 (retired in '05 and '06). i track portfolio values weekly and recall one friday afternoon that we had crossed the million dollar net worth line. it's been growing ever since. we live waaaay beneath our means but very comfortably and want for nothing. haven't looked at the 2019 final values yet and haven't gotten all of the end of year statements but i'm expecting growth in net worth to be somewhere between 25-30%. all unrealized since we seldom sell any shares in our funds. life is good.
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Old 01-03-2020, 07:49 AM   #7
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Can't remember where I read this.....

Compound Interest--those who understand it, earn it.... those who don't, pay it.
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Old 01-03-2020, 07:59 AM   #8
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Long-time lurker. I know there's been threads about this but just curious how long it took everyone to get to milestones along the way. 1 million? 2 million? then 3 million? then 4 million? and more?

Looking at my finances, I hit 1/2 million savings in 3Q 2010 (10+ years) and then a million in 3Q 2016 so 6 years. Then hit 1.5m in 3Q 2019 so just 3 years and now at 1.6m at year-end. I save about 12-15% of my income that goes into an all-stock market mutual fund so decent savings but not great. I am just amazed at how it continues to grow so consistently. Sometimes up and sometimes down but eventually it always has been going up. Just wanted to know the growth pattern that everyone has had to get to their magic number.
Beware of the dates used here. No recessions.
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Old 01-03-2020, 08:04 AM   #9
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Personal savings is the force. Return on that savings is the frosting on the cake. Your job, for most people, is your biggest wealth generator.
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Yoda was 900 years old, long enough for a lot of compounding
Old 01-03-2020, 08:11 AM   #10
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Yoda was 900 years old, long enough for a lot of compounding

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Beware of the dates used here. No recessions.
Ah, the Dark Side of the Force.
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Old 01-03-2020, 08:18 AM   #11
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Ah, the Dark Side of the Force.
Yes. As good as 2010-2020 was, I hope the younger investors here take a look at 2000-2010.

If you believe in the predictive powers of CAPE 10, the returns of the next decade will be muted.
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Old 01-03-2020, 08:35 AM   #12
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Rule of 72, the most important financial rule of thumb. Divide 72 by the compounded rate of return to determine (approximately) how long it will take for an investment to double.

At 7%, 10 years. At 10%, 7 years.

Was a useful rough planning tool when in the accumulation phase, and good for “bar napkin” calcs with your SO
^+1 What a powerful little formula. I've use it many times over the years. Quick and easy. And pretty darn accurate considering the basic nature of it.
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Old 01-03-2020, 08:48 AM   #13
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Personal savings is the force. Return on that savings is the frosting on the cake. Your job, for most people, is your biggest wealth generator.
+1. I'd add that spending, for most people, is the biggest wealth destroyer. LBYM.
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Old 01-03-2020, 08:54 AM   #14
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+1. I'd add that spending, for most people, is the biggest wealth destroyer. LBYM.
+1. that and debt. debt is dumb. without debt all things become possible.
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Old 01-03-2020, 08:58 AM   #15
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Personal savings is the force. Return on that savings is the frosting on the cake. Your job, for most people, is your biggest wealth generator.
+1

We were better savers than investors, regardless of the market, and compounding certainly made a difference. Since 1980, being able to save through both the up and down times, and choosing investments that were not have been the "best" but were "good enough" has let compounding put us in excellent FI shape for our needs.
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Old 01-03-2020, 09:36 AM   #16
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To me its a snowball effect, once you get it to a certain size and start rolling, it gets really big really fast and what you add to it has less and less impact vs. actual gains/losses in the market.

It may take longer if the market slows down (which it likely will) but still 5% of $1.6M would be $80k added every year which is still a good chunk of change and that alone would get you to over $2M in 5 years without adding a dime of your own and having very modest returns... ie congrats your snowball is very big.
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Old 01-03-2020, 09:59 AM   #17
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It works in all sorts of areas. I really appreciated it when my income grew. Even a 3% raise on $100K is $3K. Bonuses were also based on a percentage of base pay. So as the base grew, so did the bonus. It’s a good situation when things grow compounded. Maybe that’s what Meghan Trainer was really singing about.

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Old 01-03-2020, 02:39 PM   #18
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Beware of the dates used here. No recessions.
You're right. That's what I needed too. A dose of reality. Things have been going so well for the last 10+ years, it's natural to feel a little apprehension for the future.
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