Comments on: A Thought Experiment: Comparing 4% vs. 8% Investment Returns Over a 20-Year Period

By: Zach @ Four Pillar Freedom

Zach @ Four Pillar Freedom — Thu, 21 Jun 2018 20:40:37 +0000

In reply to Physician on FIRE. "Without savings to invest, returns are meaningless." Exactly! This is something that is true but doesn't get discussed enough in the finance community. Thanks for the feedback, PoF :)

By: Physician on FIRE

Physician on FIRE — Wed, 20 Jun 2018 00:30:54 +0000

The higher the savings rate, the less important the return, especially over the relatively short-term (a decade or so).

An interesting side note, though, comes from the $15,959 a year at 4% versus the $15,000 a year at 8%. The latter comes out ~ 50% (or about $250,000) ahead after 20 years. That effect is of course magnified the further out you look.

Without savings to invest, returns are meaningless. But once you start investing significant amounts, even a percent or two can make a seven-figure dollar difference over many decades.

Love the illustrations. Keep ’em coming.

Cheers!
-PoF

By: Paddlepop

Paddlepop — Tue, 19 Jun 2018 12:26:59 +0000

Hello,
Thanks for the article. I’m just wondering when you say high savings rate, do you mean the amount of capital injected into the stock market yearly or savings into the bank?

I try not to hold too much cash; 6 months of emergency and a war chest and some spending money. The rest I’d like to deploy them to investments when the bear comes.