Comments on: How Many Years Does It Take for Investment Returns to Matter More Than Savings?

By: Chasing FIRE Interview #1 - FIRE Starter: Zach - Gen Y Finance Guy

Chasing FIRE Interview #1 - FIRE Starter: Zach - Gen Y Finance Guy — Sat, 20 Oct 2018 08:01:52 +0000

[…] biggest factor in determining how fast you accumulate wealth. I wrote a full post about this topic here. 16. Who is your hero? My hero is my dad. He made it a personal goal to take my sister and me to […]

By: Zach

Zach — Wed, 25 Jul 2018 17:41:46 +0000

In reply to Joe. Glad you enjoyed the charts, Joe!

By: Joe

Joe — Wed, 25 Jul 2018 16:06:36 +0000

I love the charts too. I had a feeling it would take about 20 years for returns to overtake savings, but your chart is much more analytical. Nice job.
Of course, not all years are good so that might account for my pessimistic guess. 🙂

By: Zach

Zach — Wed, 25 Jul 2018 00:00:48 +0000

In reply to Leon @ Make Save Invest Money. Love the snowball analogy, Leon! You nailed it. Net worth growth is slow at first and relies on savings, but as time goes on, investment returns propel your numbers higher and higher at a faster rate

By: Leon @ Make Save Invest Money

Leon @ Make Save Invest Money — Tue, 24 Jul 2018 20:44:21 +0000

Hey Zach,

Another great post!
Those charts really help to illustrate the point.
It’s clear that savings rate at the beginning of your investing journey is really important until investment returns takeover.

I like to think of investing and compound interest (i.e. investment returns) like rolling a snowball down a snow covered hill. At first you have a small handsized snowball and it does not really roll by itself (no inertia). But as you add more snow to it and push it around, it really starts to grow. When it gets to the size of a snowman it will roll and create it’s own momentum, while attracting more snow. If you are at the top of a mountain, you could end up with a financial avalanche!

By: Zach

Zach — Tue, 24 Jul 2018 19:26:01 +0000

In reply to APurpleLife. $68k/yr is an incredible savings amount, congrats on such an impressive number! Glad you enjoyed the analysis along with how it connects to my previous post :)

By: APurpleLife

APurpleLife — Tue, 24 Jul 2018 18:56:27 +0000

Very cool analysis and thanks so much for the spreadsheet! It’s super fun to mess with. It looks like my savings rate is high enough ($68k/yr) that investment returns on my NW of $285K won’t overtake my savings until I have about a million dollars, which is way more than I need to retire 🙂 . Interesting. Also I’m loving how this post connects and contrasts with your other post about how a high savings rate can overshadow investment returns (no matter what they are).

https://fourpillarfreedom.com/heres-how-savings-investment-returns-impact-the-quest-to-save-1-million/

By: Zach

Zach — Tue, 24 Jul 2018 16:37:03 +0000

In reply to Mike @ Balanced Dividends. Glad you found this analysis helpful, Mike! Thanks for the feedback

By: Zach

Zach — Tue, 24 Jul 2018 16:36:29 +0000

In reply to Church. Thanks for the kind words, Church! I usually like to use a 5% return assumption as well to be on the conservative side. As you said, no matter what type of returns you receive, it's a long slow road to wealth in most cases.

By: Zach

Zach — Tue, 24 Jul 2018 16:30:00 +0000

In reply to Hamster. Interesting point, Hamster. I'll have to look at the numbers a little more myself to see if any rule exists