The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: jordy913 on May 21, 2015, 03:36:59 PM
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Hi there!
I'm a newbie, and I'm sure this has already been asked and answered, but I can't seem to find it in the search. If anyone wants to point me in the right direction, please feel free.
My question is: at what point did you really start to see the effects of compound interest? When was the moment you realized how fast your portfolio had grown?
I'm at the beginning of my quest for FI, but I'd love to know any experiences. I've got a ways to go, but I like to hit milestones, and that's one that I'm really excited for.
Thanks!
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In the early 1980s when I was about 12-13 and CDs were paying about 12 percent interest, my wonderfully mustachian late mom had me take $500 of my lawn mowing savings and buy a CD. Incredible lesson.
MMM and others like The Bank of Dad have suggested paying kids interest yourself since we're at 0.2 percent otherwise. I need to get on that with my kids.
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The S&P went up 32.39% in 2013. That didn't suck.
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Last week...when I think the value of my 2 properties essentially went up by a combined $120,000ish, based on comparable sales.
I'm reluctant to add it to the net asset totals just yet... want some extra confirmation with a couple more local sales results.
Combined, I have a valuation on them of $1m before last weeks 'adjustment' ... a 6% change (which is the long term growth rate) means $60k increase in growth per year.
Always knew the compounding effect was there, but this was the first time it smacked me across the face.
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Wow these are great shares! Very motivating.
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... when we got our act together and put everything, including idling cash, into low-fee index funds. The same amount of money works harder and faster that way!
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For me, it was when I calculated the interest/dividend yield on my portfolio was north of $2K/yr. Nothing changed from one day to the next, I had just realized my portfolio was generating actual cash that was more than pocket-change.
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It hasn't yet for me. We save $3k a month and investments only grow at about $100 a month. That's less than 1%. We will notice in 5 years when we have many times this and the growth from investments is 25% or so of what we put in monthly.
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In 2013 and 2014 when the gains were extra high. My passive gains were about 50% of my expenses in those years.
And then in the first quarter of 2015 when my gains were the same as my expenses. But this second quarter has close to plateaued so it's not as exciting anymore.
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When the capital gains started outgrowing our cash contributions to our savings. We're still splitting our surplus income between savings (maxing out any tax advantages available to us) and aggresively paying down our mortgage. Savings contributions will skyrocket once the house is paid off, but for now it's neat to see our investments rise faster than our rate of contribution.
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It's hard not to notice when the market doubles.
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NateupNorth - I think that is going to be a big milestone for me. The day when gains outgrow the contributions. Can't wait.
Pooperman - we're in the exact same boat. Contributing about that much a month, and about that amount of growth. Gotta keep reminding myself that contributing today will pay off in the future.
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My luck was buying shitty properties (that's all I could afford) and making 300 to 700%. And it was pure dumb luck.
Now I invest like a Boglehead. I love that forum as much as MMM.
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I check my shit everyday so I don't think I'm going to notice anything until one day when I wake up and realize I'm FI
LOL this is me too. Checking it everyday, asking my bank account "are we there yet? Are we there yet?"
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I think when you are investing matters to this question, and of course, that is out of your control. When I left my first job in 1999, I had ~10K in my 403b there, that I left as was. It took it ~14 years to double.
In 2010, I similarly switched jobs, leaving ~$60K in another former employer's 403b. It's (slightly) more than doubled already.
Both accounts were pretty much identically invested, 100% in stock mutual funds (mostly US stocks). Just very different time periods in terms of the market ups and downs ...
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Not really until this last year, after I found MMM....I started noticing that our NW gains were outpacing our actual income.
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Havent yet. DW and I save north of 150k a year, so that dominates any portfolio growth.
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I think it was around the time we hit a six figure net worth. It definitely seems to be getting easier now - for the first couple of years it really felt like slow going, with very little snowballing.
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I think it depends. If you start out with 500K (via inheritance let's say), you'll really start to notice it in just a few years of compounding. In contrast, if you start out with 5K, it will take decades to really see it compound.
Time can make up for starting small and contributing small. In contrast size can help balance out a limited time to compound.
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I see it most clearly when I look at my Vanguard account where they display your dividend earnings over time, they begin rising slowly then take off in later years at ever increasing values.
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This is a great thread to follow! I've only had my 401k for two years on just opened my Roth IRA two months ago, so both are still far too new to really notice the snowball. I think my 401k is +$300ish than my contributions and my Roth is -$50. It's cool to look at my 401k and say, wow, that money wouldn't be there if I just stuck it in a bank account.
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I think the moment was when Vanguard asked if I wanted to convert to Admiral shares. I had a rollover IRA with about $6,600 and just left it alone. No new contributions. One day I logged in after not looking for quite a while and got the notice I was eligible to convert. I realized that meant the account was worth at least $10,000 and I was up at least 50% on this account I had done nothing with for a few years.
Time really is the best friend of investors.
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I really notice the snowball when the market is down 2% and my portfolio drops more than the cost of a new car.
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When I generated a graph showing 2009-2014 change in net worth and saw the growth was more than outpacing my account contributions.
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When I generated a graph showing 2009-2014 change in net worth and saw the growth was more than outpacing my account contributions.
This is what I'm looking forward to :)
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I check everyday - the balance goes up and down more then our monthly pay... sometimes much more. Kind of shocking when you notice for the first time that a 'small' market swing nets you more then your paycheck (or losses you more).
Don't worry though, it's usually slow in coming so you have lots of time to get used to it.
We celebrate x amount of networth increase with a bottle of cheap bubbly... when you notice your celebrations start getting too close together... you actually consider upping the celebration milestones.
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I really notice the snowball when the market is down 2% and my portfolio drops more than the cost of a new car.
This is what really got me. I was complaining about cost of a set of good boots and realized I had lost a new car in the swing of the last week. Don't try and look to much though. Boglehead all the way just keep throwing extra cash at the index's. Check value every three months or so to update the excel sheet.
What really got me going was real estate. We would buy cheap fix and then sell every 5 years or so. Just bought a monster of a house (7 figures, 200K under market, as a flip so not MMM friendly) and that has been climbing in value like crazy even without the renovation that I am almost through. between that and the last two houses after sale I should have enough to buy something small and cozy completely outright near the water and not dig into my normal savings in about another 18 months.
35 and having a house paid off in full in a insanely costly area and the rest invested will let me jump back into the startup game where I am the happiest. Even if they fail no real effect on my quality of life.
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My question is: at what point did you really start to see the effects of compound interest? When was the moment you realized how fast your portfolio had grown?
I realize each year when I get less and less back on my tax returns because my unsheltered investments are increasing my overall income through dividend payouts/re-investments.