When Will the Momentum Kick In?

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markesquire
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Joined: Sat Jun 25, 2016 3:38 pm

When Will the Momentum Kick In?

Post by markesquire »

Nearly every investment book I’ve read says: “if you start young, even if you only invest 5k in your IRA each year, the power of the market will allow your money to grow to well over a million dollars!!” Well, I have been saving more than that and investing it for 15 years (VTSAX 80%, VTBLX 10%), and while I’m seeing some growth from the investments themselves, the overwhelming majority of the growth still seems to come from my contributions.

I’m still relatively young (30s), but this makes me discouraged and nervous because, even though I’m saving a lot, I want to retire early, and my plan (like the plans in nearly every investment book) assumes/requires that at some point, investment returns will start exceeding contributions.

How much did you have to save (and/or how long did you need to wait) before your investments started showing their own momentum apart from your contributions?
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KingRiggs
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Re: When Will the Momentum Kick In?

Post by KingRiggs »

At your stage, your percentage of income saved will be the biggest determining factor. Max out all available places to stash money as best you can.

I was 100% equities putting in max amounts, and it took about 15 years before I started to notice that I was sometimes making more in a month in my 401k than I was making in a month at my job...

Stay the course...patience, grasshopper...
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MidwestEng
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Re: When Will the Momentum Kick In?

Post by MidwestEng »

Here's a snapshot showing value of an investment (simplified) due to contributions vs. growth. At 6% the growth about equals contributions after 12 years and after only an additional 7 years (19 years) the growth is double contributions.

Image
Last edited by MidwestEng on Thu Mar 28, 2019 10:48 am, edited 1 time in total.
nesdog
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Re: When Will the Momentum Kick In?

Post by nesdog »

The power of compounding occurs later rather than earlier.

Here is a thought problem: would you rather have a million dollars right now? Or take a penny, doubled every day for a month?

If you choose the penny, it starts out like this: 1,2,4,8,16,32, 64, $1.28 and so on. It doesn't even amount to anything after a few weeks. But oh! get down to the 25 day mark and you starting building real value.

And when it's done at 30 days, you are over the million dollar mark.

As stated before..patience.
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SweetAeromotion
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Re: When Will the Momentum Kick In?

Post by SweetAeromotion »

nesdog wrote: Thu Mar 28, 2019 10:40 am The power of compounding occurs later rather than earlier.

Here is a thought problem: would you rather have a million dollars right now? Or take a penny, doubled every day for a month?

If you choose the penny, it starts out like this: 1,2,4,8,16,32, 64, $1.28 and so on. It doesn't even amount to anything after a few weeks. But oh! get down to the 25 day mark and you starting building real value.

And when it's done at 30 days, you are over the million dollar mark.

As stated before..patience.
I sometimes struggle with trying to explain compound interest, and had never heard this example before. I think I will have to keep that one around in the back of my mind.
Angst
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Re: When Will the Momentum Kick In?

Post by Angst »

100%, compounded daily - that's a pretty good deal!
I'd even be satisfied with that annually.
sailaway
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Re: When Will the Momentum Kick In?

Post by sailaway »

For those with a high savings rate, growth may never outpace what you are putting in. We are getting close to our goals and it still takes an above average year for growth to match contributions.

Do you have any dormant accounts that you clearly see the growth in? I like to watch and old 401a for that purpose.
2015
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Re: When Will the Momentum Kick In?

Post by 2015 »

Momentum kicks in when one has finally learned to turn one's attention to the many more important areas in life than investing, personal finance, and microeconomics. You will have learned that the solid satisfaction and fulfillment humans seek is built on qualities that can never be found focusing solely on investing, personal finance, and microeconomics. It takes time and living to learn that, but at that point, the momentum in all areas of your life will almost overwhelm you.
JuniorRob
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Re: When Will the Momentum Kick In?

Post by JuniorRob »

markesquire wrote: Thu Mar 28, 2019 10:17 am I have been saving more than that and investing it for 15 years (VTSAX 80%, VTBLX 10%),
I think you aren't seeing the growth, because you're losing 10% with each contribution.
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Svensk Anga
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Re: When Will the Momentum Kick In?

Post by Svensk Anga »

The thing is, when your portfolio is large enough to impress you with market gains, it is also large enough to smack you in the face with large losses. :annoyed

I'd say we were a good 20 years in before the investment gains were impressing me. Then 26 years in, we had the Great Recession. Coming out of that has been spectacular.

I would guess that your portfolio was not yet large enough to see substantial dollar gains early in that recovery. If we get another year like 2013 (32% for the S&P 500) or 2003 (28%), you will notice.
heyeaglefn
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Re: When Will the Momentum Kick In?

Post by heyeaglefn »

The math isn't hard, like others have posted just type it into a spreadsheet, momentum isn't some big surprise. What can vary is the rate of return you get but unless you were expecting something crazy like 25% then just punch it into a spreadsheet at a reasonable rate.
bloom2708
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Re: When Will the Momentum Kick In?

Post by bloom2708 »

A lot of advice is simply getting people to maximize their tax advantaged savings (when possible).

Saving $5k/year or 6% into your 401k will not allow for a comfortable retirement. It just isn't enough, even with a decent SS.

If you have a pre-tax 401k/403b/457/Thrift Savings, work toward maximizing along side your Roth IRA every year.

Save early, save often. Returns are not equal or linear. Events like 2008-2009 hurt because most sell or stop contributing or buy something "safe".

If you digest the Boglehead 10 Principles, you get an idea of the concepts that will get you to a comfortable retirement.

Also, don't think of it as "retirement savings". Think of it as "deferred spending". Spending later that you will enjoy when you are not working. That might be at 55 or 60 or 65 or 70 or later. Future spending.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
Oakwood42
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Re: When Will the Momentum Kick In?

Post by Oakwood42 »

nesdog wrote: Thu Mar 28, 2019 10:40 am The power of compounding occurs later rather than earlier.

Here is a thought problem: would you rather have a million dollars right now? Or take a penny, doubled every day for a month?

If you choose the penny, it starts out like this: 1,2,4,8,16,32, 64, $1.28 and so on. It doesn't even amount to anything after a few weeks. But oh! get down to the 25 day mark and you starting building real value.

And when it's done at 30 days, you are over the million dollar mark.

As stated before..patience.
$5,368,709.12
Gufomel
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Re: When Will the Momentum Kick In?

Post by Gufomel »

JuniorRob wrote: Thu Mar 28, 2019 3:16 pm
markesquire wrote: Thu Mar 28, 2019 10:17 am I have been saving more than that and investing it for 15 years (VTSAX 80%, VTBLX 10%),
I think you aren't seeing the growth, because you're losing 10% with each contribution.
I laughed. :D
Oakwood42
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Re: When Will the Momentum Kick In?

Post by Oakwood42 »

2015 wrote: Thu Mar 28, 2019 1:23 pm Momentum kicks in when one has finally learned to turn one's attention to the many more important areas in life than investing, personal finance, and microeconomics. You will have learned that the solid satisfaction and fulfillment humans seek is built on qualities that can never be found focusing solely on investing, personal finance, and microeconomics. It takes time and living to learn that, but at that point, the momentum in all areas of your life will almost overwhelm you.
+1
Dottie57
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Re: When Will the Momentum Kick In?

Post by Dottie57 »

Last 10 years is when I saw significant growth.
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sunnywindy
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Re: When Will the Momentum Kick In?

Post by sunnywindy »

There isn't really any other option but to keep doing what you are doing. If you didn't diligently save (as you are) and wait for the magic of compounding to happen, you certainly wouldn't be able to retire early. What you are doing has the highest probability of success, so just keep with it.
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Dottie57
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Re: When Will the Momentum Kick In?

Post by Dottie57 »

markesquire wrote: Thu Mar 28, 2019 10:17 am Nearly every investment book I’ve read says: “if you start young, even if you only invest 5k in your IRA each year, the power of the market will allow your money to grow to well over a million dollars!!” Well, I have been saving more than that and investing it for 15 years (VTSAX 80%, VTBLX 10%), and while I’m seeing some growth from the investments themselves, the overwhelming majority of the growth still seems to come from my contributions.

I’m still relatively young (30s), but this makes me discouraged and nervous because, even though I’m saving a lot, I want to retire early, and my plan (like the plans in nearly every investment book) assumes/requires that at some point, investment returns will start exceeding contributions.

How much did you have to save (and/or how long did you need to wait) before your investments started showing their own momentum apart from your contributions?
Save 20% of gross income and you should do really well. I saved 15% for 20 years and up to 45% last 10 years when income allowed and had minimal lifestyle creep.
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Wiggums
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Re: When Will the Momentum Kick In?

Post by Wiggums »

If the fund your investing in pays dividends and you reinvest them, you will see an even higher balance after 40 years.
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