When do you see compounding take off?

[Tester]

I can only dream to get there for now, but it is not daydreaming, it starts to feel real.
If I can keep at it for 3-4 more years we will get to 1 MM USD.
After that things will get much easier.
Even at 500K things seem to start taking care of themselves...
My only concern right now is that this 500k is only 275k invested, the rest is house equity and I can't really buy food with it :).

Looking for ways to put that equity to work.

[nereo]

I can only dream to get there for now, but it is not daydreaming, it starts to feel real.
If I can keep at it for 3-4 more years we will get to 1 MM USD.
After that things will get much easier.
Even at 500K things seem to start taking care of themselves...
My only concern right now is that this 500k is only 275k invested, the rest is house equity and I can't really buy food with it :).

Looking for ways to put that equity to work.

Now is a great time to do a cash ReFi…

[JJ-]

I can only dream to get there for now, but it is not daydreaming, it starts to feel real.
If I can keep at it for 3-4 more years we will get to 1 MM USD.
After that things will get much easier.
Even at 500K things seem to start taking care of themselves...
My only concern right now is that this 500k is only 275k invested, the rest is house equity and I can't really buy food with it :).

Looking for ways to put that equity to work.

Now is a great time to do a cash ReFi…

Yeah that's really the only reasonable way I know to put it to work.

[magniv]

You can look at the compound interest effect as a mathematical thing or a psychological thing.

The mathematical part is pretty straight forward and a bit boring after you understand it (IMO).

I can tell you how the psychological impact hit me.  It happened a few different ways and in a few different places.

1. One day I was looking at my brokerage account, and I realized just my taxable brokerage account had nearly $200K of unrealized capital gains sitting there.  That's $200K that's been earning me even more money, and I never even realized the scale of it in the day-to-day market movements. 
2.  I re-did my time-to-FI spreadsheet with a different look and feel.  I was playing with numbers and realized that changes to my savings rate no longer had any material impact, and the date was almost entirely a function of my portfolio growth rate assumptions.  The difference between saving 50% and 0% is the difference between full FI in 2025 vs. 2026 (Assuming a portfolio growth rate of 4%).

Number 2 is insane. How much did you accumulate to get to that point? I made the same projection, and, by just maxing out 401k+matching (the minimum savings I do in a year), I ended up right at my minimum FIRE number in four years, otherwise it will take seven years of coasting.   

To answer OP, over the past year my portfolio has gained 7x the annual amount of maxing my 401k with matching.

My favorite anecdote is from this year in March and April. I spent a month in Mexico, spent way too much (around 6k; more than I've spent on any one item in years), and by the end of the trip I was worth 20k more than I was at the start of the trip thanks to market returns.   

[mistymoney]

/';//[ppppppppppppppppppp;/';yu677ukvil                                                                                                           

Last year my portfolio grew by a little more than I spent. That happened at about 10x spending. It was noticeable, I was surprised at year end. That is in addition to us adding another 3x in contributions.

This year we are at around 12.5x mid-year and I am starting to see the light! If things hold up we are looking at another 3x contributions and 1.5x in growth, finishing the year around 14-14.5x.

Things are starting to snowball, I can feel it.

I'm not following your math.

last year at 10x start, 1x growth, 3x contribution should be 14x

this year only 12.5 midyear? after another 1.5x contributions?

[clarkfan1979]

For rental houses, it typically takes me about 5 years until the cash flow and appreciation gets really fun.

[ender]

You can look at the compound interest effect as a mathematical thing or a psychological thing.

The mathematical part is pretty straight forward and a bit boring after you understand it (IMO).

I can tell you how the psychological impact hit me.  It happened a few different ways and in a few different places.

1. One day I was looking at my brokerage account, and I realized just my taxable brokerage account had nearly $200K of unrealized capital gains sitting there.  That's $200K that's been earning me even more money, and I never even realized the scale of it in the day-to-day market movements. 
2.  I re-did my time-to-FI spreadsheet with a different look and feel.  I was playing with numbers and realized that changes to my savings rate no longer had any material impact, and the date was almost entirely a function of my portfolio growth rate assumptions.  The difference between saving 50% and 0% is the difference between full FI in 2025 vs. 2026 (Assuming a portfolio growth rate of 4%).

Number 2 is insane. How much did you accumulate to get to that point? I made the same projection, and, by just maxing out 401k+matching (the minimum savings I do in a year), I ended up right at my minimum FIRE number in four years, otherwise it will take seven years of coasting.   

To answer OP, over the past year my portfolio has gained 7x the annual amount of maxing my 401k with matching.

My favorite anecdote is from this year in March and April. I spent a month in Mexico, spent way too much (around 6k; more than I've spent on any one item in years), and by the end of the trip I was worth 20k more than I was at the start of the trip thanks to market returns.   

It depends on what your target FIRE number is right?

If you're aiming for $2M, and are saving $25k/year, it's going to not be very long before compounding takes off if you're starting from $0 (especially over the last decade). Because your initial savings amount is constant.

Conversely, if you save $25k then $50k then $75k then $100k, etc, each of those subsequent years of increased savings starts to really overpower the compounding growth.

So really it's a factor of relative magnitudes as far as this question goes.

[joe189man]

To answer OP, over the past year my portfolio has gained 7x the annual amount of maxing my 401k with matching.
 

We are currently in the ~0.8:1 ratio range (401k portfolio growth to contributions (2 working adults)) at the moment assuming usual market gains of ~7%

Looking at projections around the $665k range we hit 1:1,  $1.3 million is around 2:1 ratio, $1.9 million is around 3:1, $2.5 is around 4:1

Obviously everyone has a different contribution amount and ROR assumption but its fun to calculate and think about

[Steeze]

/';//[ppppppppppppppppppp;/';yu677ukvil                                                                                                           

Last year my portfolio grew by a little more than I spent. That happened at about 10x spending. It was noticeable, I was surprised at year end. That is in addition to us adding another 3x in contributions.

This year we are at around 12.5x mid-year and I am starting to see the light! If things hold up we are looking at another 3x contributions and 1.5x in growth, finishing the year around 14-14.5x.

Things are starting to snowball, I can feel it.

I'm not following your math.

last year at 10x start, 1x growth, 3x contribution should be 14x

this year only 12.5 midyear? after another 1.5x contributions?

Ended last year at 10x after adding 3x and having 1x growth. This year started at 10x and we have already increased to 12.5x - projected to hit 14.5x by end of this year, 1.5x is growth.

[mistymoney]

/';//[ppppppppppppppppppp;/';yu677ukvil                                                                                                           

Last year my portfolio grew by a little more than I spent. That happened at about 10x spending. It was noticeable, I was surprised at year end. That is in addition to us adding another 3x in contributions.

This year we are at around 12.5x mid-year and I am starting to see the light! If things hold up we are looking at another 3x contributions and 1.5x in growth, finishing the year around 14-14.5x.

Things are starting to snowball, I can feel it.

I'm not following your math.

last year at 10x start, 1x growth, 3x contribution should be 14x

this year only 12.5 midyear? after another 1.5x contributions?

Ended last year at 10x after adding 3x and having 1x growth. This year started at 10x and we have already increased to 12.5x - projected to hit 14.5x by end of this year, 1.5x is growth.

ah! thanks for clarifying!

[Tester]

You can look at the compound interest effect as a mathematical thing or a psychological thing.

The mathematical part is pretty straight forward and a bit boring after you understand it (IMO).

I can tell you how the psychological impact hit me.  It happened a few different ways and in a few different places.

1. One day I was looking at my brokerage account, and I realized just my taxable brokerage account had nearly $200K of unrealized capital gains sitting there.  That's $200K that's been earning me even more money, and I never even realized the scale of it in the day-to-day market movements. 
2.  I re-did my time-to-FI spreadsheet with a different look and feel.  I was playing with numbers and realized that changes to my savings rate no longer had any material impact, and the date was almost entirely a function of my portfolio growth rate assumptions.  The difference between saving 50% and 0% is the difference between full FI in 2025 vs. 2026 (Assuming a portfolio growth rate of 4%).

Yeah that second point is really the tipping point to me. I started tweaking my tracker like what if we spent everything we made what would our fi date be. Only 3 years. Longer wow.

I am still to have a target FI number as I think we are spending like crazy...
The good news is that in 6 years we went from 0 net worth to 575k net worth.
Liquid only 280k, but the total is a good number to give confidence, especially since last year the liquid was 520k - buying a house ate a lot of the liquid part.

I am keeping my head down to get to 1 MM total and then 1 MM liquid, after that I will reassess.

[JJ-]

You can look at the compound interest effect as a mathematical thing or a psychological thing.

The mathematical part is pretty straight forward and a bit boring after you understand it (IMO).

I can tell you how the psychological impact hit me.  It happened a few different ways and in a few different places.

1. One day I was looking at my brokerage account, and I realized just my taxable brokerage account had nearly $200K of unrealized capital gains sitting there.  That's $200K that's been earning me even more money, and I never even realized the scale of it in the day-to-day market movements. 
2.  I re-did my time-to-FI spreadsheet with a different look and feel.  I was playing with numbers and realized that changes to my savings rate no longer had any material impact, and the date was almost entirely a function of my portfolio growth rate assumptions.  The difference between saving 50% and 0% is the difference between full FI in 2025 vs. 2026 (Assuming a portfolio growth rate of 4%).

Yeah that second point is really the tipping point to me. I started tweaking my tracker like what if we spent everything we made what would our fi date be. Only 3 years. Longer wow.

I am still to have a target FI number as I think we are spending like crazy...
The good news is that in 6 years we went from 0 net worth to 575k net worth.
Liquid only 280k, but the total is a good number to give confidence, especially since last year the liquid was 520k - buying a house ate a lot of the liquid part.

I am keeping my head down to get to 1 MM total and then 1 MM liquid, after that I will reassess.

Did you put $200k+ down on a house? Is that 20% or more?

[Tester]

@JJ- Only 120k down, spent around 60k on items after buying it (known when we decided to buy).
Plus I am not tracking things with great accuracy, might be off a couple 10k.

It was not the best decision money wise, but strangely I am feeling much les stressed now than when renting...

I am now focusing on getting over 300k liquid net worth by the end of the year and to 1MM total net worth in the next 4 years.

[JJ-]

@JJ- Only 120k down, spent around 60k on items after buying it (known when we decided to buy).
Plus I am not tracking things with great accuracy, might be off a couple 10k.

It was not the best decision money wise, but strangely I am feeling much les stressed now than when renting...

I am now focusing on getting over 300k liquid net worth by the end of the year and to 1MM total net worth in the next 4 years.

Peace of mind can be worth the price.

[Tester]

@JJ- Only 120k down, spent around 60k on items after buying it (known when we decided to buy).
Plus I am not tracking things with great accuracy, might be off a couple 10k.

It was not the best decision money wise, but strangely I am feeling much les stressed now than when renting...

I am now focusing on getting over 300k liquid net worth by the end of the year and to 1MM total net worth in the next 4 years.

Peace of mind can be worth the price.

For now it seems it is.
And I learned that my dreams of having a perfect garden with multiple opportunities to do do yard work to destress is a dream (for me at least:)).


Anyway, regarding compounding take off - this year, my old 401k grew by 24k.
And it is a small 401k, after that growth it is at 210k...
I know that for us this is not enough, but I remember reading in this forum that some people are FIREd with 24k spending/year...
So, that is an encouraging sign...

[Edwards]

60/40 is one of the worst allocations second only to all VTSAX.

Would you elaborate on this?
I've seen this mentioned before (possibly by you) but would appreciate a more specific explanation about all VTSAX being the worst allocation. Thanks in advance for the reply.