Returns Over Time
Morgan Housel recently published an article called “Keep it Going” on his blog at the Collaborative Fund, and it highlighted the power of sustainability in training for athletics and how it ties to investing.
Here is a quote from Morgan’s article:
“For the highest levels to be attainable over time, the process has to be sustainable.
Which is exactly how good investing works too, isn’t it?
The most important investing question is not, “What are the highest returns I can earn?”
It’s, “What are the best returns I can sustain for the longest period of time?”
Compounding is just returns to the power of time. Time is the exponent that does the heavy lifting, and the common denominator of almost all big fortunes isn’t returns; it’s endurance and longevity.
“Excellent returns for a few years” is not nearly as powerful as “pretty good returns for a long time.” And few things can beat, “average returns sustained for a very long time.”
That’s the biggest but most obvious secret in investing: Average returns for an above-average period of time leads to magic.”
Returns Over Time (Visualized)
| My friend Cody Garrett from Measure Twice Money published this to Twitter recently and I thought it paired perfectly with Morgan’s article above: “Compound interest is difficult for our brains to comprehend. So of course, I made a chart! |
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| Don’t underestimate the power of staying invested over long periods. After a decade, your gains may exceed your contribution!” |
From Around the FI Community
I wanted to highlight some articles from friends of mine from around the FI Community that I think you’ll find interesting:
- Liz from Frugalwoods is back running her “Uber Frugal Month Challenge” in July, so read about it and sign up.
- Physician on Fire has an interesting look at the “Top 5 Expenses that Go Down in Early Retirement”
- Big news for anyone who has followed personal finance blogs for a while is that ‘J. Money’ is back writing again at Budgets are Sexy. Here’s his “Allow me to re-Introduce Myself” post.
ChooseFI Community Taking Action This Week
- Sam said, “Thank you for the show and the emails- Monday is one of my favorite days of the week now because I have a new episode of Choose FI to look forward to. Since listening to Choose FI, I’ve been able to make a lot of improvements to my life. My 1% better the past few months have included negotiating my wifi bill (the first bill I’ve ever negotiated); changing my cell phone plan which resulted in saving $60.00 per month; beginning to use a travel rewards credit card for my everyday purchases; and moving to a lower rent apartment- resulting in $700/month in savings. I’m 26 years old with a $40,000 yearly income. This show has helped me feel more financially stable and knowledgeable. I’ve increased my net worth 2x already this year and am aiming to have saved $25,000 by the end of the year.”
- Anthony said, “My 1% better: Since I graduated college 4 years ago, I’ve been determined to teach myself financial literacy and set up a good foundation for my future. I’ve lived in New York City since graduation and originally wasn’t making much, so I couldn’t progress in my financial journey. Fast forward to August 2021 where I landed my first job in the Salesforce ecosystem with a 50% salary increase! In the year 2022, I have fully funded my HSA and am on track to fully fund my 401k and roth IRA as well!!! Never in a million years did I think I’d be able to invest/save ~$30k in a year while living in the NYC area. Thank you for being such a great resource for me to build the right mindset!”
- Kelsey said, “My 1% better is using my FU money and emergency fund! I am in the middle of a 6 month maternity leave. The first 4.5 months are paid through Washington State at 90% and the rest will be unpaid. My husband will take 10 weeks of leave when I go back to work. I was also able to reduce the hours that I work as a nurse so that I am working 5 nights every 2 weeks. Because of this we were able to eliminate our need for childcare save for one day every other week, which my MIL is more than willing to help with. My pregnancy was very complicated, requiring me to call out of work frequently, my son was sick and required hospitalization, and my young adult sibling had an emergency that I wanted to help with financially. When it rains it pours! Because of our diligence we were able to manage each of these emergencies without altering our leave, turning them from financial emergencies to inconveniences.”
- Nathan said, “My 1% better this week is maxing out my and my wife’s Roth IRA’s this week! I’m excited to have it finished so early in the year, and can now put the rest in a brokerage account, while still on track to max out my 401k for the year!”
- Juli said, “Brad, I am so excited because I did the math and realized we are already FI if we get our pension & SS at age 62. The only reason we are staying at work for the next 7 years is to put both kids through college. With the difference we have now created between income and expenses we can pay completely out of pocket except for a one year overlap – and the 529’s are enough for that!! This is even after maxing out all retirement accounts and putting away extra in taxable accounts! Dreaming of Belize, Panama or Portugal for the years between 58 and 65! Thank you for all the inspiration. This sense of freedom is AMAZING!”
- Paul said, “My 1% better this week was finally doing tax-loss harvesting (TLH). I had read about TLH in the past but was uncomfortable with it and scared to pull the trigger during the last downturn, as it intuitively felt like I was buying high and selling low. After further researching TLH, I understand that is not the case, that not doing TLH in a down market is leaving money on the table, and that the ability to TLH is a silver lining to a down market. I ended up harvesting $65k in losses, with no real change in my asset allocation. Thanks for discussing this on your podcast in the past!”
