Aptenodytes wrote:
So the answer comes down to some variant of the following:
+ When I stopped seeing the portfolio as a hypothetical value to an actual value
+ When I became proud of it
+ When I came to actually believe that I might be able to live comfortably off of it
+ When it hit a large round number
+ When the annual returns in absolute terms gobsmacked me
.
dbr wrote:letsgobobby wrote:by "take off at origin" do you mean because portfolio goes from zero to some positive number, even $1?
That's a rather... literal... interpretation of the OP's query.
Perhaps s/he meant, when did you portfolio graph (including contributions) take a decidedly vertical slant, excluding day of first contribution?
Assuming initial contributions of $10,000/yr, increasing at some rate x each year and with a return of y then one could get something like this:
0, 10000, 20900, 32763 etc. that is for x = 3% and y= 6%
So on a logarithmic scale the slope in the first year is infinite (of course we exclude that as a figment of arithmetic), but the slopes for all succeeding years are defined and constantly decrease on a log(assets)-time plot. We use log(assets) because by definition compound growth is linear in log(assets) vs time and we are looking for when the slope is steeper than linear, which happens at the beginning and subsides over time. Eventually the growth becomes asymptotic from below to a line with a slope of y (in appropriate units). That condition happens when contributions are completely negligible compared to returns, but if returns are constant, there is never an inflection point in the curve that can be interpreted as "take off." It just isn't in the math. As pointed out, if returns are not constant, there can be inflection points.
letsgobobby wrote:
using linear rather than log scales is more fun.
letsgobobby wrote:using linear rather than log scales is more fun.
MathWizard wrote:I feel like the portfolio takes off when the return exceed my contributions.
For me that is was between 12 and 20 years. (2001 to 2009 for me, so returns were all over the place.)
Contributions are a linear component of the total portfolio, while returns are an
exponential component. One the exponential component vecomes the larger
component, the protfolio takes off. To me this happens at the crossing point, when
average returns exceed contributions. (You could also use the doubling time,
which would happen a little later. To get this, use the rule of 72 and your average
projected return. E.g. for a 6% return, 72/6 = 12 years, for a 4% return 72/4 = 18 years.)
letsgobobby wrote:using linear rather than log scales is more fun.
by STC » Sat Jan 05, 2013 10:39 am
My "takeoff point" was when my portfolio gain could be considered another "salary" for an educated adult. It went from me and my wife making an income. To me, my wife, and our friend the investment portfolio making an income.
by ResNullius » Sat Jan 05, 2013 12:37 pm
Along the way, I watched with great interest whenever I crossed a milestone, which for me was every $100K.
am wrote:"Best thing would be not to check portfolio unless necessary for transactions. This would make the volatility more tolerable."
Alf 101 wrote:My question is at what point did you feel your portfolio take off -- for compounding to really kick in and become noticeable, when you felt your holdings became large enough to have momentum? Time is my friend, but I'm just interested how (and if) the road gets easier ahead.
The Wizard wrote:MathWizard wrote:Contributions are a linear component of the total portfolio, while returns are an
exponential component.
Baloney.
Returns are linear, directly proportional to your principal amount, whether $1M or $10M.
FNK wrote:The Wizard wrote:MathWizard wrote:Contributions are a linear component of the total portfolio, while returns are an
exponential component.
Baloney.
Returns are linear, directly proportional to your principal amount, whether $1M or $10M.
Cool. Wizard fight.
I'm with MathWizard. You see, the principal amount grows, making cumulative returns decidedly nonlinear.
MathWizard wrote:I feel like the portfolio takes off when the return exceed my contributions.
For me that is was between 12 and 20 years. (2001 to 2009 for me, so returns were all over the place.)
rgb73 wrote:This is a pretty good question - I would say when your returns are much greater than your annual savings; however in a severe bear market this obviously works in reverse as returns wipe out any savings you might add in a given year. Thus for me its a combination of good year(s) - which you can't count on - and a big portfolio compared to your annual savings level.
mptfan wrote:So if I don't contribute anything to my portfolio this year, and it goes up by $100, then it has "taken off?"
livesoft wrote:Today's Carl Richards napkin sketch seems to apply to this thread:
http://bucks.blogs.nytimes.com/2013/01/ ... xcitement/
I'll guess he lurks here.
livesoft wrote:Today's Carl Richards napkin sketch seems to apply to this thread:
http://bucks.blogs.nytimes.com/2013/01/ ... xcitement/
I'll guess he lurks here.
umfundi wrote:By the way, I showed my kids the Brother1 vs. Brother2 spreadsheet. They were impressed.
easily contribute more than $1,000
dbr wrote:FNK wrote:The Wizard wrote:MathWizard wrote:Contributions are a linear component of the total portfolio, while returns are an
exponential component.
Baloney.
Returns are linear, directly proportional to your principal amount, whether $1M or $10M.
Cool. Wizard fight.
I'm with MathWizard. You see, the principal amount grows, making cumulative returns decidedly nonlinear.
Funny, The exponential function is a result of integrating a differential which is linearly proportional to the function. Thus linearity of the one is the defining property that causes the other.
umfundi wrote:easily contribute more than $1,000
Part of my unstated point is that tax-advantaged savings space is limited.
Grt2bOutdoors wrote:livesoft wrote:It takes off when there are several good years in a row. Say like from late 2002 to 2007.
Yes, before a big sickle comes swooping down to wipe the jubliant smile off your face like the years 1999-2000 did for many who thought they were overnight millionaires with equities that counted "clicks or website hits" like they were counting actual revenue dollars. Those who were heavy in tech then likely have not yet recovered.
random user 320 wrote:... it only makes the example less realistic in my mind.
umfundi wrote:Oh, and Brother3 saved nothing but won $3 million in the lottery three weeks before he retired.
yb wrote:I think of this from the perspectives of my friends and relatives who are either in debt or just breaking even and not doing anything to really get on the savings train. At first, it seems like savings takes forever to grow. When the market is performing badly, it looks like no progress is being made or worse, money is being lost. However, once you hit certain milestones, like 2x annual pay, the growth starts to move faster than it did before and you can see it happening in shorter time spans. This is all obvious when you do the math, of course, and this is not the time to scale back or anything, but it is a time when you can see effects of compounding interest [and continued savings] working in your favor. I was surprised at how quickly 2x went to 3x, considering how long it took to get to 2x! Seeing this happen can be an incentive to save even more or at least positive feedback that you are on the right track.
yb wrote:I think many on this board may have trouble remembering when it took forever for savings to grow (or maybe they never experienced this time at all).
[cut for space]yb wrote:I was surprised at how quickly 2x went to 3x, considering how long it took to get to 2x! Seeing this happen can be an incentive to save even more or at least positive feedback that you are on the right track.
livesoft wrote:It takes off when there are several good years in a row. Say like from late 2002 to 2007.
sscritic wrote:It wasn't an age. It wasn't a year. It wasn't a multiple of my salary. It was one million smackaroos!
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