When Did You Notice Compounding?

[nexus]

A while back I read an article on grow.acorns.com that basically said two things.
1. The first 50k is the hardest to save up.
2. After you hit 50k, you really start to notice compounding.

So, here are my questions for discussion.
- Was it challenging to save up your first $50k?
Yes and no. I had to get out of debt first, but once that happened it has been fairly easy. I've also noticed that as the stash grows, I get more ballsy/careless at times when deciding whether or not to treat myself/spend money. I realize I'm pushing back my FI date on the rare occasions when I do this.

- How long did it take?
For me, it is taking about 21 months. I'm wrapping up month 18 now, but may be looking for another job so I've started hoarding cash instead of investing with my regular frequency. Finally 50k+net worth, but only roughly $42k is invested

- At what point/balance did you really notice the effect of compounding, market appreciation, dividends, etc?
I can't say I've noticed it all that much yet, but then again I'm still about $7.5k from having $50k invested.

If you guys can think of any additional questions, let me know and I'll update this post. Thank you!

[Jon_Snow]

Just like I find the fixation on Dow 20,000 to be a bit silly...I think it's not especially helpful to focus on a magic number at which point compounding really becomes noticable.

All this said, and to completely destroy my argument, at around 500k invested it started to resemble the proverbial snowball rolling downhill...and...really fun to watch. :)

Obviously, at this point I was further along the savings/investing path...but I can see how 50k could bring about similar feelings for those closer to the start of the FI path.

You seem to be on your way nexus...keep it up. :)

[Gondolin]

So, here are my questions for discussion.
- Was it challenging to save up your first $50k?
No - I had a bunch saved but, not invested when I embarked on the MMM journey so hitting $50 came quickly.

- How long did it take?
>1 year.

- At what point/balance did you really notice the effect of compounding, market appreciation, dividends, etc?
I don't look much at unrealized market appreciation but, around $100k I really started to notice the multi-hundred dollar dividend reinvestments adding up - especially in quarters with flat/low growth.

[ysette9]

I remember sitting in an undergrad class when the lecture was on compound interest. It wasn't the first time that I had heard about it but it was the first time that it really resonated. I was so excited by it that I sent by then-boyfriend/now-husband a text about how amazing it was and how I couldn't wait to get started. I've been looking for that curve in my net worth ever since I started working full time.

I don't think I really started feeling the magic of compounding until recently. It had its seeds when we combined our households and finances after marriage, but that is also very much related to how much easier it is to save with two incomes. The last couple of years have been wild to watch ($1M to $1.5M+ in about 2.5 years).

[RyanAtTanagra]

It's hard to tell because of the ups and downs of the market, plus my total contributions tend to increase every year.  I've heard people say it becomes noticeable when the returns surpass your contributions.

[Raenia]

- Was it challenging to save up your first $50k?
No, I found it happened pretty much on autopilot, and I hadn't found MMM yet so I wasn't really focused on saving as an end goal, it just kinda happened.

- How long did it take?
From the time I got my first job, about 3 years, 2 years from when I opened my Vanguard account.  But like I said, I wasn't focused on saving at that point. 

- At what point/balance did you really notice the effect of compounding, market appreciation, dividends, etc?
I made a few badly timed investments (wasn't trying to time the market, just got unlucky), so it's taken until the latter part of last year for me to start noticing returns.  Even now it's not a very prominent effect (at ~100k).  I'm hoping this year the returns will start taking off more.

[spokey doke]

It's hard to tell because of the ups and downs of the market

Yes...THOSE I notice, and it is pretty amazing at times...

I started late (looooooong stint in school), then went from having next to nothing to well past 50K quickly, because of starting a career, marriage, and parents passing away, all within a few years

[neil]

This seems somewhat backwards, but going through my first negative month (at about a NW of ~$80K) gave me the feeling that the market was having power over my net worth, and it wasn't always going to be positive.  It didn't affect my behavior, but I still find the moments are quite meaningful as a recognition of the power.

If you invest regularly and don't mess with your allocation too much, you should see your dividends increase at a greater (and much more stable rate) compared to your savings.  Even in 2008/2009 I reported significantly more than the prior years.  And even though I am more focused on the total return, the idea of what the passive income starts to cover (food, then bills, then rent, etc) sort of gives a tangible connection to the cash flow your investments create and what it covers out of your real life expenses.

[evensjw]

Not yet but hopefully it kicks in soon!

I don't know when I hit 50K, but I can say I am about to hit 100K in investments any day now, and it still seems painfully slow.  Net worth is around 200K if you add equity from my home.  Again, I feel like any day now the mortgage should just feel like it's evaporating but $147K still seems like a lot to pay off.

But maybe I'm just too mathematically inclined, so I am able to recognize that my net worth growth is occurring at a constant rate.

[FIreDrill]

We found MMM about 3 years ago and started saving aggressively then.  I first started to see the power of the market on our investments when we got to around 100k. 

I think specifying a specific number is a tricky question for mustachians because we save at such an aggressive rate and may not have our investments compound for the first couple years if we happen to begin in a flat market.

We are at approx 212k invested now and I'm personally starting to notice the power of compounding.  In a decent year we should see 20k+ in market gains now.  I think it will really start to get ridiculous when we hit 500k invested.  Probably won't get there for several more years though.

It's definitely a fun ride!

Sent from my SM-G935F using Tapatalk

[mwulff]

Haven't noticed it yet. I see the changes in the amount of stocks we hold, but it doesn't feel like compounding just yet.

[Lews Therin]

I noticed compounding when my Tax-Free account had 10K above the max contribution limit.

I never over-contributed, so there's compounding in action!

[arebelspy]

When you early retire, the vast majority of your stache is from savings, not investment earnings.

What that means is that you won't see much from compounding. What you WILL see is compounding letting you not work forever, as it's that compounding (gains on gains) that will allow your portfolio to survive and even thrive even as you withdraw tens of thousands from it every year to live on.

That acorn number is ridiculous*. 50k?  That'll earn maybe 2-4k in a typical market.  If you're a Mustachian and saving tens of thousands, the few thousand your investments get is swamped.

*Hint: don't read blogs of tools that encourage poor use of money, or lazy "hacks" that are inefficient.

If you're a normal person saving 3-5%, and it took you a decade to save 50k, sure, then the gains of 2-4k are about as much as you're contributing, and you'll see that compounding.

For us though, it's less relevant, because we don't need the decades to let it compound (we instead build up the stache quick, without the compounding, but then use the compounding to enable our FIRE).

Previous threads asking the same thing, with more discussion if you're interested in the topic:
http://forum.mrmoneymustache.com/ask-a-mustachian/at-what-dollar-level-does-the-$$-start-compounding-fast
http://forum.mrmoneymustache.com/welcome-to-the-forum/when-did-you-notice-the-compound-interest-snowball/
http://forum.mrmoneymustache.com/ask-a-mustachian/high-net-worth-mustachians-when-did-your-money-really-start-to-grow/
http://forum.mrmoneymustache.com/welcome-to-the-forum/importance-of-stock-returns-to-fi/
http://forum.mrmoneymustache.com/ask-a-mustachian/snowball-effect/

There are more, if you want to search, but I got tired of cutting and pasting.  :)

[gerardc]

Around $50k invested, you'll see $50-400 daily fluctuations. At $500k invested, $500-4k fluctuations.

Like ARS said, if you have a high enough savings rate, your contributions will dwarf your expenses. Since you typically stop working when expenses ~ returns, this means your contributions will dwarf your returns even nearing RE.

[arebelspy]

Like ARS said, if you have a high enough savings rate, your contributions will dwarf your expenses. Since you typically stop working when expenses ~ returns, this means your contributions will dwarf your returns even nearing RE.

And the higher your savings rate, the more true this is.

If you contribute 75%, are at 25x expenses saved, and the market returns 5%, your contributions that year are still 2.4X your investment earnings (yet your earnings are enough to cover your expenses).

If your savings rate is only 50% in that scenario, your contributions are only 0.8x your investment earnings, so you've just barely hit the "investment earnings > contributions" level as you're ready to FIRE.

For someone saving very low amounts, they hit it quicker.  But compounding/investment returns isn't too relevant for Mustachians in the accumulation phase (though very relevant in the ER phase).

[Laura33]

Elementary school -- the old "would you take a penny that doubles every day for a month, or $100,000?" question.  Holy bejeebers -- I had to do the math over and over again to believe it.  The other thing that stuck with me was the difference between the final numbers if the month is February vs. May.

I can't recall how fast the first $50K took; it was years ago, at a much lower salary and after paying off loans, so maybe 4 years?  I still struggle to believe the projections -- they still seem unreal to me, in the same way that school game did, but now that I'm older it's easier to see it all in retrospect.  When I first did the "when will we have a million invested?" projections, I didn't believe the math, but we got there within about a year of that original projected date. 

I also don't notice it on an ongoing basis because I just don't look -- everything's on autopilot.  So maybe once a year I see how much we went up or down and go, wow!  Although I intentionally didn't look after the crash, didn't want to see. :-)

[BlueHouse]

Only after finding these forums, creating my personal investment strategy, and following it.  Previously, I diversified my assets by having multiple funds in multiple accounts at multiple brokerages.  There was a lot of overlap and no good strategy.  I just changed my assets on whims and sometimes would change funds at one brokerage and then 1 week or 1 month later, do the exact opposite at another without even realizing it.   I was paying fees and paying taxes because I wasn't making smart decisions and didn't understand the implications of the choices I made.  It took almost a year to consolidate all of my small accounts.  By simplifying things, I have such a better understanding of my assets and can plan and track to meet my goals.  I now have only:
1. 401K held at my company's custodian
1. Roth IRA held at Vanguard
1. after-tax investment account

And within those three accounts, I own a total of 5 funds (VTSAX, VTIAX, etc). 
I'm now able to keep my hands off my investments, stop messing up what I do, and actually let my money work for me.  Once I took those steps, I started noticing the compounding immediately. 

[prognastat]

I would say once I hit 150k invested. Part of this is that I didn't get serious until a little before that. Before that we were saving a decent amount, but not as much as we could, nor were we paying as much attention to the returns. However I probably noticed most of all this month where for the first time our investments returned as much as we were able to invest ourselves. Now I doubt the rest of the year is going to perform as well as this first month has, but simply the fact that my investments were able to match my contributions even for just one month is amazing.

Hopefully in the near future we can get it to the point where almost every month our investments outpace our contributions.

[Slow&Steady]

I am only thinking about my 401k in my answers because I never considered anything else in the past.  You will also notice that I am not on the fast track to FIRE.

- Was it challenging to save up your first $50k?
No, mostly because I didn't think about it at all until about 4 years ago

- How long did it take?
I finished school 10 years ago and started putting whatever my match was into a 401k.  I believe I hit $50k in late 2014, or about 8 years after I started contributing.  I was a step further than others my age because my Dad always talked about putting money into a 401k as soon as possible, BUT he never said how much.  I wish I would have put more in sooner.

- At what point/balance did you really notice the effect of compounding, market appreciation, dividends, etc?
I still do not max out my 401k and I have actually lowered some of my contributions as we have grown the family and invested in DH starting his own business. In 2015 my balance barely grew at all but I am currently sitting at over $70k.  I did notice some compounding in 2016 as my balance grew by $14k but my contributions were only $8.5k.  I am excited and hopeful that starting this year I will be able to see more positive increase. I would love to see the market helps me get over $100k within the next 2 years, as contributions over the next 2 years will only increase if DH's company takes off. 

[tooqk4u22]

It's hard to tell because of the ups and downs of the market, plus my total contributions tend to increase every year.  I've heard people say it becomes noticeable when the returns surpass your contributions.

This is it for me - new money gets invested, I don't need it or touch it, things go up and down and so on.  Also having gone through the dotcom bust cycle (didn't have too much invested though) and the financial crisis makes it hard to fully appreciate the compounding.  If I all of a sudden came into a boatload of money in 2010 and dumped it into the market I am sure I would feel really good, and would certainly recognize, the compounding.

I guess I noticed too the impacts when the near term swings (+/- 10% in a shortish period) of my portfolio turned out to be greater than my annual contributions - if only returns/compounding was linear.

[ooeei]

I'm at 150k now, and the returns are dwarfed by my contributions, so I don't really notice it. 

[Mgmny]

I don't really notice it yet, and I have about $50k in investments. These are split between rIRA, tIRA, and taxable, (and another 3 for my wife, which I do not see regularly, but she probably has ~12-14k) and I've been much more aggressive about saving in the last 11 months (since finding MMM), so my stash has gone from about 25k to ~55k since March 2016.

In that time, with my contributions, it looks like the market has given me about $3500. That seems like nothing! In retirement, I'll probably want around that amount per month, so my stash needs to grow at least 10x bigger than it is before I start noticing how cool it is.

[radram]

Was it challenging to save up your first $50k?
Started after college graduation in 1993. This was before there was such a thing as FIRE, as least as far as I knew. Internet was too new, so it wasn't an idea easily discussed or learned about. Still, we had a reason to save; we wanted a house. Back then, you needed something called a down payment to get one.We wanted 20% down because we heard it was cheaper. Household income of about $40,000. We skipped 401k contributions because we wanted the down payment faster. I recommend maximizing at least the company match, and I would try to convince the younger me of that now. Maybe that is you :) In reality, it probably cost us very little, since we did get that down payment about 1 year early.
We then plowed everything into the house, again skipping 401k contribution in order to pay it off faster. All math says this is the wrong move, yet the house was paid off in 3.5 years. It was a 7.6% rate, so we took the "guarantee" at the cost of forgoing the company match.

How long did it take?
 In reality, we do not know how long it took to get to $50,000, but within 5.5 years of graduating college, we had a house free and clear worth about $85,000,no other debt, and an emergency stache. This was where saving into any sort of account began. The year was 1999.

At what point/balance did you really notice the effect of compounding, market appreciation, dividends, etc?

There were 3 light-bulb moments.

1. I was working for my grandfather at his metal fabricating business. I was making 3x minimum wage at the age of 16. My father came up to me with a hand written chart. He loaned someone some money, and filled out an amortization schedule for repayment, showing what was paid, and how much was profit. I recall the rate being something like 8%, give or take. He just pointed to the "paid" column and the "profit" column, and asked me, "Which column do you want to be". Life changing for me. At 16, I recognized the evil of debt, and how it changes lives in both directions. Today, I like the MMM  chart showing percent saving and working year needed, shown here:
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Even with what I know now, I still say wow when I see this chart. Simple. Choose your rate and your fate.

2. We were committed to saving what we were spending on our mortgage. Realizing from then on we were paying our mortgage to ourselves was a powerful time.

3. Ironically, our first 10 years of investing is a time now referred to as "the lost decade". As a result, it was probably 12 years of investing before we actually saw the compounding value of it. We went from occasional modest growth not really noticed, to suddenly seeing our investments were earning 30-40% of what we needed to live. That was around 2001 or so, and was the beginning of our FIRE plan, which became reality in 2015 at the age of 45.

[fattest_foot]

We're a little above $200k and I still don't really notice it that much. And after reading the other comments, I believe this is due to our contributions being so much more of a percentage of change.

I will say the first time I had a feeling of the weight of our portfolio was the drop in August 2015 when in a single day we lost about $7k.

[arebelspy]

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Even with what I know now, I still say wow when I see this chart. Simple. Choose your rate and your fate.

Hah, catchy.

Ironically, our first 10 years of investing is a time now referred to as "the lost decade".

Wow, lucky!  Only a lost decade if you had it all invested at the front. If you were investing throughout, as you were, it was a phenomenal time to be investing low.  :)

[catccc]

I'm going to guess it took 18 months to hit my first 50K.  Maybe less, because I gifted $26K to my sister and BIL shortly after starting post college work.

I can most definitely say I did not "notice compounding" at 50K.  Far from it, IMO.  But maybe I'm just impatient.  And, I check in on my NW through an account aggregator nearly daily, so it all seems very gradual.  Many people around here say $500K is where it starts to snowball/compound.  We are at $730K now, and it is definitely going faster, but not like, "holy cow, if we don't retire now, we'll be filthy rich!!"  Not that I am aiming for that... 

So I'm crossing my fingers that $800K is the lucky number.

But, to be fair, I've had some years better than others.  Milestones like growth exceeding contributions, growth exceeding income, etc, that stuff is fun to see.  I graph my NW and I can definitely see that the last 3 years show a steeper slope of growth the the previous 3 years. 

 

[Dicey]

When it made me rich, lol. Seriously, when my investments earned more in a month than I did.

That's why I continue to harp on the folly of pre-paying cheap-ass, affordable mortgages at the expense of investing. Why delay the rushing tide of effortless money? A huge ball o' money ensures far better sleep than lack of a mortgage payment. #askmehowiknow

Heh, heh, thanks for asking. <she steps off soapbox, and goes out to play, happily FIRE'd>

[Goldielocks]

It took forever, it seemed, to save that first $30k...  between needing /buying a car, getting a condo, getting a FT job, supporting a spouse....   I was thrilled when it passed that mark.

Compounding -- really kicked in when I could not rebalance each year just with new money additions.  Typically I would direct save a percentage of my income, then lump sum a top up once per year to balance out the account. The year that I had to SELL one investment, to buy another to re-balance it, was a shocker.

DH was startled when our home equity increase was much greater than what we both made in a year.  We thought we made good money back then (it was over $160k combined)  That was the first eye opener for us, around 2004.

[radram]

When it made me rich, lol. Seriously, when my investments earned more in a month than I did.

That's why I continue to harp on the folly of pre-paying cheap-ass, affordable mortgages at the expense of investing. Why delay the rushing tide of effortless money? A huge ball o' money ensures far better sleep than lack of a mortgage payment. #askmehowiknow

Heh, heh, thanks for asking. <she steps off soapbox, and goes out to play, happily FIRE'd>

I prefer to have both :)

Really, times have changed quite a bit in 20 years. My 7.6% rate was a pretty high "guaranteed" return. Today is different. Even though I could begin a mortgage to invest that chunk, and math says I would most likely financially benefit, I also sleep just fine. I no  longer need that additional risk, so choose not to take it.

Here's to hoping BOTH our paths lead to endless sleepful(not a word??) nights :)

Enjoy your play.

[radram]

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Even with what I know now, I still say wow when I see this chart. Simple. Choose your rate and your fate.

Hah, catchy.

I liked that as I was typing it :)

[prognastat]

When it made me rich, lol. Seriously, when my investments earned more in a month than I did.

That's why I continue to harp on the folly of pre-paying cheap-ass, affordable mortgages at the expense of investing. Why delay the rushing tide of effortless money? A huge ball o' money ensures far better sleep than lack of a mortgage payment. #askmehowiknow

Heh, heh, thanks for asking. <she steps off soapbox, and goes out to play, happily FIRE'd>

I wouldn't consider paying off your mortgage as fruitless, having a paid of house means you need less income, this smaller stache to cover your expenses, pay fewer taxes. If it was just me I probably would rather take the increased risk and not pay off the mortgage and instead build a larger stache, but to make my wife feel more comfortable instead the plan is to build our stache till it's big enough and then focus on paying off the mortgage asap before FIRE. If it makes her more comfortable with FIRE I'm okay giving up the edge in potential returns on investing the difference.

[MoonLiteNite]

- Was it challenging to save up your first $50k?
Not really, once i decided to do it, it was easy.

- How long did it take?
Took me 10 years, but really the first 8 years only got me around 6k, My "out of college" job at a deli i had put in around 10k, but due to 08 crash when i rolled it over last year it was only worth 6k. I honestly didn't even look at to see what i had selected as investment, it must have sucked though. The other 40k came from the last 24 months once i learned of the IRA ladder and started dumping money into 401k.


- At what point/balance did you really notice the effect of compounding, market appreciation, dividends, etc?
At around 50k is when i saw it, when i added up my 4 main accounts.
401k - 4k 18%
LC - 500$  15%
Tax account - 2,000$ 10% (only had this open for 6 months of 2016 too!
rIRA - 300$ - 5.6% (only had this open for like 4 months of 2016)

So around 10k free bucks just for around 55,000$ invested
Of course this was a great year for me with investments. I hope the next 7 years bring returns like this. It will allow me to say i am FI by age 40.
Also my 2017 living cost was just under 20k. So with a great year for returns, and a great year for low spending. I am 1/2 way to FI. But i know both of these are NOT the normal :)

[prognastat]

Ah also I forgot the questions:

- Was it challenging to save up your first $50k?
No, when I found out about FIRE I had already passed 50k between me and my wife.

- How long did it take?
Was done before Fire, but took about 4 years without actually being focused on it.

- At what point/balance did you really notice the effect of compounding, market appreciation, dividends, etc?
I would say once I hit 150k invested. Part of this is that I didn't get serious until a little before that. Before that we were saving a decent amount, but not as much as we could, nor were we paying as much attention to the returns. However I probably noticed most of all this month where for the first time our investments returned as much as we were able to invest ourselves. Now I doubt the rest of the year is going to perform as well as this first month has, but simply the fact that my investments were able to match my contributions even for just one month is amazing.

Hopefully in the near future we can get it to the point where almost every month our investments outpace our contributions.

[acroy]

Once I realized my finances were a mess, it took about 3mo to get the 50k. Just quit spending like mad, sold a bunch of toys, and popped it all into a brokerage. Bam, 50k.

I really started to notice compound effect when the returns on the 401k investments outstripped the annual investments. Maxing out my own investment (15-18k/yr iirc) but gaining 15-20k/yr in returns. The curve started showing parabolic tendencies. yahoo!

[gerardc]

Just a pedantic note... What most people are referring to here is simply interest, not compound interest. Compounding includes interest on your interest, which is much smaller than the main interest on capital.

[Dicey]

When it made me rich, lol. Seriously, when my investments earned more in a month than I did.

That's why I continue to harp on the folly of pre-paying cheap-ass, affordable mortgages at the expense of investing. Why delay the rushing tide of effortless money? A huge ball o' money ensures far better sleep than lack of a mortgage payment. #askmehowiknow

Heh, heh, thanks for asking. <she steps off soapbox, and goes out to play, happily FIRE'd>

I prefer to have both :)

Really, times have changed quite a bit in 20 years. My 7.6% rate was a pretty high "guaranteed" return. Today is different. Even though I could begin a mortgage to invest that chunk, and math says I would most likely financially benefit, I also sleep just fine. I no  longer need that additional risk, so choose not to take it.

Here's to hoping BOTH our paths lead to endless sleepful(not a word??) nights :)

Enjoy your play.

Ah, perhaps that was a bit unclear. My primary home is mortgage free. Paid cash for it, after I had amassed a big ball o' money. That's part of why there's more money than I ever dreamed possible, because it had many years to compound while I made slow and steady mortgage payments on my previous home(s).

FWIW, I remember being thrilled to snag a 7% mortgage on a condo in 1996. My first home was higher, but that happened in 1988. I'd have to look it up.

I don't consider affordable mortgages to carry any particular risk, they're not callable and they don't fluctuate like equities do. I generally put 20% down, have a big, fat EF and don't live on last month's money, but the month before that. Carrying a cheap mortgage on a house you can afford the payments is using leverage to create wealth. "Kill all the debt" works, but it's a longer path to wealth. One of the many things that I wish was taught in school.

Radram, you and I are perhaps a bit older than the average reader. I stay post-FIRE to share the lessons I wish someone had offered me when I was starting out. Paying yourself first includes stuffing your investment accounts before prepaying the mortgage. Some people are fortunate enough to do both, but many more do not earn enough to do that. The road to FIRE is about the road less taken, as is letting cheap, affordable mortgages ride. "Kill all the debt" is simple and easier to understand; leverage, compound interest and hedging against inflation, perhaps not so much.

To this point and yours, with rates this low, it makes even less sense to prepay a sub-4 mortgage that it did in our olden times of rates in the sevens or higher. Rates will go up, as we've experienced before. Those holding on to their cheap mortgages are going to be mighty glad they did.

And I did, thank you. It was a very good day.

[Dicey]

Just a pedantic note... What most people are referring to here is simply interest, not compound interest. Compounding includes interest on your interest, which is much smaller than the main interest on capital.

Um no. Over time the effect of compound interest can far exceed simple interest.

[gerardc]

Um no. Over time the effect of compound interest can far exceed simple interest.

Yes but you'll start noticing interest on capital way before compound interest. If you don't even notice your returns yet (as is discussed by most in this thread), your compounding is negligible.

[radram]

When it made me rich, lol. Seriously, when my investments earned more in a month than I did.

That's why I continue to harp on the folly of pre-paying cheap-ass, affordable mortgages at the expense of investing. Why delay the rushing tide of effortless money? A huge ball o' money ensures far better sleep than lack of a mortgage payment. #askmehowiknow

Heh, heh, thanks for asking. <she steps off soapbox, and goes out to play, happily FIRE'd>

I prefer to have both :)

Really, times have changed quite a bit in 20 years. My 7.6% rate was a pretty high "guaranteed" return. Today is different. Even though I could begin a mortgage to invest that chunk, and math says I would most likely financially benefit, I also sleep just fine. I no  longer need that additional risk, so choose not to take it.

Here's to hoping BOTH our paths lead to endless sleepful(not a word??) nights :)

Enjoy your play.

Ah, perhaps that was a bit unclear. My primary home is mortgage free. Paid cash for it, after I had amassed a big ball o' money. That's part of why there's more money than I ever dreamed possible, because it had many years to compound while I made slow and steady mortgage payments on my previous home(s).

FWIW, I remember being thrilled to snag a 7% mortgage on a condo in 1996. My first home was higher, but that happened in 1988. I'd have to look it up.

I don't consider affordable mortgages to carry any particular risk, they're not callable and they don't fluctuate like equities do. I generally put 20% down, have a big, fat EF and don't live on last month's money, but the month before that. Carrying a cheap mortgage on a house you can afford the payments is using leverage to create wealth. "Kill all the debt" works, but it's a longer path to wealth. One of the many things that I wish was taught in school.

Radram, you and I are perhaps a bit older than the average reader. I stay post-FIRE to share the lessons I wish someone had offered me when I was starting out. Paying yourself first includes stuffing your investment accounts before prepaying the mortgage. Some people are fortunate enough to do both, but many more do not earn enough to do that. The road to FIRE is about the road less taken, as is letting cheap, affordable mortgages ride. "Kill all the debt" is simple and easier to understand; leverage, compound interest and hedging against inflation, perhaps not so much.

To this point and yours, with rates this low, it makes even less sense to prepay a sub-4 mortgage that it did in our olden times of rates in the sevens or higher. Rates will go up, as we've experienced before. Those holding on to their cheap mortgages are going to be mighty glad they did.

And I did, thank you. It was a very good day.

Sounds like we agree. I did think about getting an unneeded mortgage when rates were hoovering around 3.25%, but just figured why. More money I did not need in exchange for more monthly spending I did not care to take on. If I had one at 3-4% today, I would be paying the minimum and investing the rest.

I have also reached the point where I would be fine with higher interest rates. Do you remember when the 30 year bond set a record of a 14.56% yield in 1982? I was 13, and not paying attention then. Double digit inflation was a problem, something not seen since that time. At that rate I would even take a look at what annuities were doing for crying out loud. Annuities - ALWAYS a poor investment, but a valid option for cash flow under the right terms in my opinion. 2% is NOT the right terms.

I agree rates will go up. Maybe a lot eventually. Interesting to note that many of the people that would need to handle it were not born yet the last time it happened. Hope they are big readers of the past. I sure am.

Time for a walk :)

[tooqk4u22]

The table below depicts why higher savings rate people don't feel it early on (or low SR people for that matter).  Assumes you put in $50k each period and a 4% return (real) and demonstrates the WR at each period assuming $40k spending.  Early on the absolute returns are small but the increases in portfolio are great and the decline is WR is great.

As it gets much later in the periods the returns are >/= contributions and WR doesn't change much period to period - also demonstrates that OMY doesn't really help all that much. 


 Investments     Return    WR
 50,000     2,000    80.0%
 102,000     4,080    39.2%
 156,080     6,243    25.6%
 212,323     8,493    18.8%
 270,816     10,833    14.8%
 331,649     13,266    12.1%
 394,915     15,797    10.1%
 460,711     18,428    8.7%
 529,140     21,166    7.6%
 600,305     24,012    6.7%
 674,318     26,973    5.9%
 751,290     30,052    5.3%
 831,342     33,254    4.8%
 914,596     36,584    4.4%
 1,001,179     40,047    4.0%
 1,091,227     43,649    3.7%
 1,184,876     47,395    3.4%
 1,282,271     51,291    3.1%
 1,383,561     55,342    2.9%
 1,488,904     59,556    2.7%
 1,598,460     63,938    2.5%

[Dicey]

Oh radram, I'm about a decade older than you, which is partly why I'm too lazy to quote our whole convo above.

Not only do I remember, I was doing it whole hog. I was saving my ass off so I could buy my first house. How about a CD earning 15.99%? Yup, more than one. Possibly even one close to 17%. The bad part about that, besides high mortgage rates, was that I didn't need to invest in the stock market. When the interest gravy train stopped, it took me too long to learn about equities. Even then, I was too afraid to buy individual stocks. I wasted more time trying out financial planners, but finally cobbled together something that worked. Remember, MMM, ERE, GRS and even TSD didn't exist way back then. I read YMOYL, but his investment style was no help and further, has not stood the test of time.

I am seriously glad that this type of advice is so readily accessible now. I also struggled with feeling like a total financial loner. Now, people who want FIRE have lots of good advice available, and for those who find the MMM forums, lots of excellent company, like yourself.