The value of saving and smart investing

2009-12-30 23:16:33

#1

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

Just running some compound interest formulas over Christmas break and seeing what one should expect if one saves and invests wisely over a lifetime. These formulas assume a 10% yearly return which is hardly impossible, the stock market gained 20% last year and Warren Buffett averages 18% per year. It also assumes a lifespan of 80 years and begins at age 30, so 50 years, with 35 possible working years.

Years of work Total return Invested/Yr
1 $55,000.00 $50,000.00
2 $116,600.00 $51,000.00
3 $185,482.00 $52,020.00
4 $262,396.64 $53,060.40
5 $348,170.07 $54,121.61
6 $443,711.52 $55,204.04
7 $550,021.61 $56,308.12
8 $668,201.48 $57,434.28
9 $799,462.90 $58,582.97
10 $945,139.28 $59,754.63
11 $1,106,697.90 $60,949.72
12 $1,285,753.28 $62,168.72
13 $1,484,081.90 $63,412.09
14 $1,703,638.46 $64,680.33
15 $1,946,573.63 $65,973.94
16 $2,215,253.76 $67,293.42
17 $2,512,282.35 $68,639.29
18 $2,840,523.86 $70,012.07
19 $3,203,129.79 $71,412.31
20 $3,603,567.38 $72,840.56

So after twenty years of work and investing $50,000 per year (plus 2% increase per year due to cost of living increases and inflation) you would have $3,603,567.38. If you retired on this day and decided to live on an income of $200,000 a year, here is what you could expect with the same 10% yearly return on investment:

Retirement Yr Net Worth Yrly 'Salary'
1 3,603,567.38 200,000.00
2 3,763,924.12 200,000.00
3 3,940,316.53 200,000.00
4 4,134,348.18 200,000.00
5 4,347,783.00 200,000.00
6 4,582,561.30 200,000.00
7 4,840,817.43 200,000.00
8 5,124,899.18 200,000.00
9 5,437,389.09 200,000.00
10 5,781,128.00 200,000.00
11 6,159,240.80 200,000.00
12 6,575,164.88 200,000.00
13 7,032,681.37 200,000.00
14 7,535,949.51 200,000.00
15 8,089,544.46 200,000.00
16 8,698,498.90 200,000.00
17 9,368,348.79 200,000.00
18 10,105,183.67 200,000.00
19 10,915,702.04 200,000.00
20 11,807,272.25 200,000.00
21 12,787,999.47 200,000.00
22 13,866,799.42 200,000.00
23 15,053,479.36 200,000.00
24 16,358,827.30 200,000.00
25 17,794,710.02 200,000.00
26 19,374,181.03 200,000.00
27 21,111,599.13 200,000.00
28 23,022,759.04 200,000.00
29 25,125,034.95 200,000.00
30 27,437,538.44 200,000.00

So, retire at 50 with $3.6M, spend the next 30+ years living off an income of $200,000 on a beach somewhere in Florida. Sounds groovy, no?

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-30 23:20:49

#2

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

Same thing, except work the full 35 years this time:
Years of work Total return Invested/Yr
1 $55,000.00 $50,000.00
2 $116,600.00 $51,000.00
3 $185,482.00 $52,020.00
4 $262,396.64 $53,060.40
5 $348,170.07 $54,121.61
6 $443,711.52 $55,204.04
7 $550,021.61 $56,308.12
8 $668,201.48 $57,434.28
9 $799,462.90 $58,582.97
10 $945,139.28 $59,754.63
11 $1,106,697.90 $60,949.72
12 $1,285,753.28 $62,168.72
13 $1,484,081.90 $63,412.09
14 $1,703,638.46 $64,680.33
15 $1,946,573.63 $65,973.94
16 $2,215,253.76 $67,293.42
17 $2,512,282.35 $68,639.29
18 $2,840,523.86 $70,012.07
19 $3,203,129.79 $71,412.31
20 $3,603,567.38 $72,840.56
21 $4,045,651.23 $74,297.37
22 $4,533,578.00 $75,783.32
23 $5,071,964.68 $77,298.98
24 $5,665,890.61 $78,844.96
25 $6,320,943.71 $80,421.86
26 $7,043,271.42 $82,030.30
27 $7,839,636.55 $83,670.91
28 $8,717,478.97 $85,344.32
29 $9,684,983.19 $87,051.21
30 $10,751,152.97 $88,792.23
31 $11,925,893.15 $90,568.08
32 $13,220,099.86 $92,379.44
33 $14,645,759.57 $94,227.03
34 $16,216,058.26 $96,111.57
35 $17,945,501.27 $98,033.80

Just short of $18M at retirement, not bad.

Same $200k salary over the next 15 years:
1 $17,945,501.27 $200,000.00
2 $19,540,051.39 $200,000.00
3 $21,294,056.53 $200,000.00
4 $23,223,462.18 $200,000.00
5 $25,345,808.40 $200,000.00
6 $27,680,389.24 $200,000.00
7 $30,248,428.17 $200,000.00
8 $33,073,270.98 $200,000.00
9 $36,180,598.08 $200,000.00
10 $39,598,657.89 $200,000.00
11 $43,358,523.68 $200,000.00
12 $47,494,376.05 $200,000.00
13 $52,043,813.65 $200,000.00
14 $57,048,195.02 $200,000.00
15 $62,553,014.52 $200,000.00

End with $62.5M for the kids.

If you somehow managed to live until 95... well...
16 $68,608,315.97 $200,000.00
17 $75,269,147.57 $200,000.00
18 $82,596,062.33 $200,000.00
19 $90,655,668.56 $200,000.00
20 $99,521,235.41 $200,000.00
21 $109,273,358.96 $200,000.00
22 $120,000,694.85 $200,000.00
23 $131,800,764.34 $200,000.00
24 $144,780,840.77 $200,000.00
25 $159,058,924.85 $200,000.00
26 $174,764,817.33 $200,000.00
27 $192,041,299.07 $200,000.00
28 $211,045,428.97 $200,000.00
29 $231,949,971.87 $200,000.00
30 $254,944,969.06 $200,000.00

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-30 23:21:50

#3

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

Yes, I do stuff like this for fun. This is why I am an engineer

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-30 23:26:25

#4

13/f/taiwan: Member; +940|5990

Haha, I do stuff like this all the time.

If I ever have any extra cash left over I'm most likely going to invest it into small businesses. 90% of my Father's side of the family is still in Yemen and will probably arrive to America in the next 10 years. They're going to need cash to start off and a partner to help them with all the paper work.

2009-12-30 23:30:08

#5

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

13/f/taiwan wrote:
Haha, I do stuff like this all the time.

If I ever have any extra cash left over I'm most likely going to invest it into small businesses. 90% of my Father's side of the family is still in Yemen and will probably arrive to America in the next 10 years. They're going to need cash to start off and a partner to help them with all the paper work.

Be careful and do your homework before deciding on what small business to invest in. Most fail.

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-30 23:41:05

#6

13/f/taiwan: Member; +940|5990

JohnG@lt wrote:
13/f/taiwan wrote:
Haha, I do stuff like this all the time.

If I ever have any extra cash left over I'm most likely going to invest it into small businesses. 90% of my Father's side of the family is still in Yemen and will probably arrive to America in the next 10 years. They're going to need cash to start off and a partner to help them with all the paper work.
Be careful and do your homework before deciding on what small business to invest in. Most fail.

What I see happening most likely is my Father and I(mainly my Father) will cut them into the business we already own. Then we will purchase a store from someone else. My Father is too old for those 18 hours, 7 days a week work schedules and I will be busy with my own job. We'll just help them with the basics and teach them how to manage a store. That way we only have to come in for a few hours and make sure everything is running smooth.

If I wanted to start a business though I would have became an accountant/opened my own print shop up. There are lots of people from my country who own stores and have a hard time finding an Arab accountant. And the neighborhood I live in only has 2 print shops(my Uncle opened the second one up 8 years ago).

2009-12-30 23:53:15

#7

Dilbert_X: The X stands for; +1,817|6397|eXtreme to the maX

Great, except:
10% is next to impossible, even Madoff didn't claim that high
You have to pay taxes
Inflation will take away half your gain, usually more

Fuck Israel

2009-12-31 03:15:18

#8

Burwhale: Save the BlobFish!; +136|6513|Brisneyland

This does highlight the value of compound interest, and its a very useful topic. The only thing I would have an issue with would be how many people could afford to invest $50K per year ( hope I am not splitting hairs John, I am sure that figure was picked as an example). I think thats a pretty tall order . That said, compound interest does work well on lower amounts as well. It just takes longer.

I agree with DilbertX as well. I just had a quick look at my managed funds, and only one has gone over 10% (averaged) for the last 5 years. Maybe the last 5 years isnt a good guide (due to GFC) but over a longer period the gains may be better.

2009-12-31 03:57:20

#9

PureFodder: Member; +225|6576

How many people earn $50k more than they need to live on after taxes and can get 10% per year on investments every year without loosing a whole crapload in stock crashes and recessions?

Just for reference the median US household income is about $50k per year before tax.

2009-12-31 07:44:09

#10

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

Burwhale wrote:
This does highlight the value of compound interest, and its a very useful topic. The only thing I would have an issue with would be how many people could afford to invest $50K per year ( hope I am not splitting hairs John, I am sure that figure was picked as an example). I think thats a pretty tall order . That said, compound interest does work well on lower amounts as well. It just takes longer.

I agree with DilbertX as well. I just had a quick look at my managed funds, and only one has gone over 10% (averaged) for the last 5 years. Maybe the last 5 years isnt a good guide (due to GFC) but over a longer period the gains may be better.

$50k was just an example. I know not everyone can do it. I happen to live in one of the most expensive places in the world so wages are higher here. My gf an I will be making a combined $200k next year pre-tax so 50k is our goal.

As for 10% being hard? (I used 10% as an example here but my real goal is an annual 15%). As I said, Buffett does 18% and if you took a composite of the S&P index, it averages 12-15% growth every year. You have to look at the long term on investments, not the up and down bubble/recession crap that goes on every 3-5 years.

Last edited by JohnG@lt (2009-12-31 07:52:25)

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-31 08:02:27

#11

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

PureFodder wrote:
How many people earn $50k more than they need to live on after taxes and can get 10% per year on investments every year without loosing a whole crapload in stock crashes and recessions?

Just for reference the median US household income is about $50k per year before tax.

Yeah, if you do no research and bet all your money haphazardly that's called speculation. If you do your homework, pick your investments carefully and then sit on them for the long term you'll reduce your chances of loss greatly.

DJIA over time

S&P 500 over time

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-31 08:13:06

#12

Buckles: Cheeky Keen; +329|6847|Kent, UK

You haven't factored in a whole heap of things that would cause shit to go wrong.
Inflation and tax between them would eat the shit out of your income here. Then management/broking fees for trading stocks and investments aren't cheap. And boom/bust cycles would also fuck up your investments because if you happen to have investments in businesses that go under in a recession or downturn, you could stand to lose a lot and wouldn't necessarily get your money back any time fast.

2009-12-31 08:16:04

#13

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

Buckles wrote:
You haven't factored in a whole heap of things that would cause shit to go wrong.
Inflation and tax between them would eat the shit out of your income here. Then management/broking fees for trading stocks and investments aren't cheap. And boom/bust cycles would also fuck up your investments because if you happen to have investments in businesses that go under in a recession or downturn, you could stand to lose a lot and wouldn't necessarily get your money back any time fast.

Yes, I know that inflation, taxes and fees will eat into it. What's your point? Should I just spend all my money now, say 'fuck it, it's not worth investing' and depend on the government for my retirement?

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-31 09:32:27

#14

Buckles: Cheeky Keen; +329|6847|Kent, UK

JohnG@lt wrote:
Buckles wrote:
You haven't factored in a whole heap of things that would cause shit to go wrong.
Inflation and tax between them would eat the shit out of your income here. Then management/broking fees for trading stocks and investments aren't cheap. And boom/bust cycles would also fuck up your investments because if you happen to have investments in businesses that go under in a recession or downturn, you could stand to lose a lot and wouldn't necessarily get your money back any time fast.
Yes, I know that inflation, taxes and fees will eat into it. What's your point? Should I just spend all my money now, say 'fuck it, it's not worth investing' and depend on the government for my retirement?

No, my point is that your models are at best inaccurate, at worst misleading.

2009-12-31 09:36:36

#15

Flaming_Maniac: prince of insufficient light; +2,490|6998|67.222.138.85

I mean seriously assuming inflation is five percent is about as likely as assuming ten percent the whole way through.

2009-12-31 09:46:35

#16

PureFodder: Member; +225|6576

JohnG@lt wrote:
Yes, I know that inflation, taxes and fees will eat into it. What's your point? Should I just spend all my money now, say 'fuck it, it's not worth investing' and depend on the government for my retirement?

If you have an additional $50k per year just sitting around after taxes, living expenses and money for whatever you enjoy doing in life, then by all means invest it. The point is that the majority don't earn that in the first place, let alone factoring in tax and living expense. Then there are further issues around why bother just getting by and saving money till your old when you can spend it having fun while you're fit and healthy? If you can enjoy life and have $50k left over to invest and have the time to do the research needed to do it well, then it's a good idea.

Putting some money into a relatively secure pension scheme is obviously a decent plan though. It removes a lot of the time and risk from it.

2009-12-31 09:58:25

#17

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

PureFodder wrote:
JohnG@lt wrote:
Yes, I know that inflation, taxes and fees will eat into it. What's your point? Should I just spend all my money now, say 'fuck it, it's not worth investing' and depend on the government for my retirement?
If you have an additional $50k per year just sitting around after taxes, living expenses and money for whatever you enjoy doing in life, then by all means invest it. The point is that the majority don't earn that in the first place, let alone factoring in tax and living expense. Then there are further issues around why bother just getting by and saving money till your old when you can spend it having fun while you're fit and healthy? If you can enjoy life and have $50k left over to invest and have the time to do the research needed to do it well, then it's a good idea.

Putting some money into a relatively secure pension scheme is obviously a decent plan though. It removes a lot of the time and risk from it.

Can the average person do 5k a year?

Years of work Total return Invested/Yr
1 $5,500.00 $5,000.00
2 $11,660.00 $5,100.00
3 $18,548.20 $5,202.00
4 $26,239.66 $5,306.04
5 $34,817.01 $5,412.16
6 $44,371.15 $5,520.40
7 $55,002.16 $5,630.81
8 $66,820.15 $5,743.43
9 $79,946.29 $5,858.30
10 $94,513.93 $5,975.46
11 $110,669.79 $6,094.97
12 $128,575.33 $6,216.87
13 $148,408.19 $6,341.21
14 $170,363.85 $6,468.03
15 $194,657.36 $6,597.39
16 $221,525.38 $6,729.34
17 $251,228.23 $6,863.93
18 $284,052.39 $7,001.21
19 $320,312.98 $7,141.23
20 $360,356.74 $7,284.06
21 $404,565.12 $7,429.74
22 $453,357.80 $7,578.33
23 $507,196.47 $7,729.90
24 $566,589.06 $7,884.50
25 $632,094.37 $8,042.19
26 $704,327.14 $8,203.03
27 $783,963.66 $8,367.09
28 $871,747.90 $8,534.43
29 $968,498.32 $8,705.12
30 $1,075,115.30 $8,879.22
31 $1,192,589.32 $9,056.81
32 $1,322,009.99 $9,237.94
33 $1,464,575.96 $9,422.70
34 $1,621,605.83 $9,611.16
35 $1,794,550.13 $9,803.38

So, $1.8M at retirement. $150k 'salary' through retirement.

Retirement Yr Net Worth Yrly 'Salary'
1 $1,794,550.13 $150,000.00
2 $1,809,005.14 $150,000.00
3 $1,824,905.65 $150,000.00
4 $1,842,396.22 $150,000.00
5 $1,861,635.84 $150,000.00
6 $1,882,799.42 $150,000.00
7 $1,906,079.37 $150,000.00
8 $1,931,687.30 $150,000.00
9 $1,959,856.03 $150,000.00
10 $1,990,841.64 $150,000.00
11 $2,024,925.80 $150,000.00
12 $2,062,418.38 $150,000.00
13 $2,103,660.22 $150,000.00
14 $2,149,026.24 $150,000.00
15 $2,198,928.87 $150,000.00
16 $2,253,821.75 $150,000.00
17 $2,314,203.93 $150,000.00
18 $2,380,624.32 $150,000.00
19 $2,453,686.75 $150,000.00
20 $2,534,055.43 $150,000.00

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-31 10:24:45

#18

Buckles: Cheeky Keen; +329|6847|Kent, UK

Have a look at this tool if you want a more accurate idea of retirement planning.

https://hsss.hsbc.co.uk/ukpersonal/futu … aunchType=

2009-12-31 10:29:09

#19

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

Buckles wrote:
Have a look at this tool if you want a more accurate idea of retirement planning.

https://hsss.hsbc.co.uk/ukpersonal/futu … aunchType=

Your estimated annual pension income at retirement £150,640
Estimated fund required £ 2,469,924
Monthly payment required (gross) £ 1,674
Monthly payment required (net) £ 1,306

So how was I wrong?

Last edited by JohnG@lt (2009-12-31 10:30:46)

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-31 10:34:08

#20

Buckles: Cheeky Keen; +329|6847|Kent, UK

The rest of the data you use has a massive bearing on the final result. I could skew the data I put into it to get any result I liked. I'm not trying to get one over on you mate, just show a more accurate modeller.

2009-12-31 10:36:37

#21

DrunkFace: Germans did 911; +427|6972|Disaster Free Zone

They didn't make superannuation compulsory here for no reason.

2009-12-31 10:40:07

#22

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

DrunkFace wrote:
They didn't make superannuation compulsory here for no reason.

That's a nice system you guys have set up. I still prefer to do it myself and I'm against making it mandatory on philosophical grounds, but it's nice nonetheless.

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-31 10:42:21

#23

Jay: Bork! Bork! Bork!; +2,006|5649|London, England

Buckles wrote:
The rest of the data you use has a massive bearing on the final result. I could skew the data I put into it to get any result I liked. I'm not trying to get one over on you mate, just show a more accurate modeller.

I used my original data of a $200k annual salary. I'm choosing to invest $50k a year, the modeller you linked said I only had to invest $32k a year in order to maintain the retirement I want. There's nothing flawed about my simple calculations except that I didn't include capital gains taxes.

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
-Frederick Bastiat

2009-12-31 11:23:57

#24

m3thod: All kiiiiiiiiinds of gainz; +2,197|6962|UK

delusional.

Blackbelts are just whitebelts who have never quit.

2009-12-31 11:29:12

#25

Ilocano: buuuurrrrrrppppp.......; +341|6958

John,

Curious what your living expenses are that you can invest $50K a year on $200K gross income, especially since you mentioned you live in an expensive area. Rent/home, cars, kids to come, vacation fund, emergency fund, college fund, private school tuition, health/fire/car insurance, etc.

BF2S Forums The value of saving and smart investing

13/f/taiwan wrote:

JohnG@lt wrote:

13/f/taiwan wrote:

Burwhale wrote:

PureFodder wrote:

Buckles wrote:

JohnG@lt wrote:

Buckles wrote:

JohnG@lt wrote:

PureFodder wrote:

JohnG@lt wrote:

Buckles wrote:

DrunkFace wrote:

Buckles wrote:

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