Sanrith Descartes
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Investing General Discussion
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Guest, did you like the last podcast notification?? Well here's the second one, and for the third podcast! Yep. This Thursday 8-8-24 at 7pm Central
Go here to check out his podcast thread for info on topics and links!Go into the FoH discord and find the Happy Time Fun Hour channel and give it a listen!
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Since everyone was discussing time as an investment a few pages back, I wanted to put together my own passive investor look.
Takeaways for me on reflection:
* Don't need to be a talented investor or hire a talented investor to build wealth.
* Investing your time somewhere can still produce exponential gains, just along a different axis.
* If you're starting a bit later investing, you might not be missing out on as much of your potential future wealth as you'd think.
* On the flipside, it's easy to have that "oh every dollar will come back 20x" thought in the back of my mind and get lax only DCAing a fixed amount each year instead of really pressing through budgeting for not only proportional, but above proportional amounts of income growth to get invested for the future each year. When fixed loan payments roll off, I don't plan to loosen the belt, but instead throw at least the lion's share into retirement.
The safety blanket of an income is something I'll be loathe to ever give up, but I appreciate everyone, especially those living solely off returns, sharing not just their trades but their experiences here. I've definitely had some things jar an 'aha' moment, like
Gravel
's comment about not worrying about tax implications because he can live comfortably selling below the minimum tax threshold. Will my family need my full current income in retirement, or even close? Something for me to think about.
Below is my post-tax income normalized to my first full year's earnings in the workforce, and SPY growth normalized to the same year. I've invested time in my career and grown my post-tax income ~2.5x in the past 12 years, but the market has handily outpaced me. This would suggest that my most valuable passive investing days from a wealth creation perspective are already long behind me:
However, if I pull out my (simplified but still pretty close--take my growing expenses as a present consumption preference for my family) variable and fixed costs, I really didn't have a lot left over to invest early on in the first place. Even though my post-tax income growth was only 2.5x over the last 12 years, I actually had about an 8x growth in what I was able to put into the market vs. when I started:
As a long-term investor (until I start de-risking) I really only care about the price of the S&P500 30 years from now and how many shares of it I own. So I can measure the total 'wealth' I'm gaining every year by just counting the number of shares I purchase (for simplicity, let's set aside the tax advantages that come from % in retirement accounts, more recent shares having a higher cost basis, etc.). Dividing the shaded area above by the growth in SPY share price yields the number of shares bought per year (normalized again), which is the chart below:
From a future wealth creation perspective, what I'm investing annually today is worth twice as much as what I invested in my first few years despite over a decade of market growth in the latter.
Before I started looking at this, I'd always implicitly assumed that "start saving early" and "compounding compounds" were unassailable mantras, but in actuality those first 5 years only produced about a quarter of my current invested wealth, property aside (2016 was a new home at the max of my debt-servicing capacity). 20 years from now it'll be at most ~10% even if I took my foot off the gas tomorrow from a career POV. 10% of everything is a lot, but it's not "you lost before you began" levels, either. Below is that long term view with only inflationary income raises of about 1.85% post-tax for the next 20 years (and SPY growing at 9%):
When I first looked at this years ago, I had to double-check the math. Even after investing for three decades, a full 30% of my retirement fund is the same dollars I put into the market (blue). That is an enormous amount of money. That's not to say investing doesn't matter--that 250% return from the market is the lion's share, and the equivalent of 60 years additional work--but comparatively, the market will have increased by over 2,100% during the same 31 year timeframe. If I think about my daughter, aside from helping with fixed costs, if I can just get her set up with a fraction of money post-college and lock it away, she will enter her own later years with an entire other career's worth of accumulated wealth for free.
However, if I pull out my (simplified but still pretty close--take my growing expenses as a present consumption preference for my family) variable and fixed costs, I really didn't have a lot left over to invest early on in the first place. Even though my post-tax income growth was only 2.5x over the last 12 years, I actually had about an 8x growth in what I was able to put into the market vs. when I started:
As a long-term investor (until I start de-risking) I really only care about the price of the S&P500 30 years from now and how many shares of it I own. So I can measure the total 'wealth' I'm gaining every year by just counting the number of shares I purchase (for simplicity, let's set aside the tax advantages that come from % in retirement accounts, more recent shares having a higher cost basis, etc.). Dividing the shaded area above by the growth in SPY share price yields the number of shares bought per year (normalized again), which is the chart below:
From a future wealth creation perspective, what I'm investing annually today is worth twice as much as what I invested in my first few years despite over a decade of market growth in the latter.
Before I started looking at this, I'd always implicitly assumed that "start saving early" and "compounding compounds" were unassailable mantras, but in actuality those first 5 years only produced about a quarter of my current invested wealth, property aside (2016 was a new home at the max of my debt-servicing capacity). 20 years from now it'll be at most ~10% even if I took my foot off the gas tomorrow from a career POV. 10% of everything is a lot, but it's not "you lost before you began" levels, either. Below is that long term view with only inflationary income raises of about 1.85% post-tax for the next 20 years (and SPY growing at 9%):
When I first looked at this years ago, I had to double-check the math. Even after investing for three decades, a full 30% of my retirement fund is the same dollars I put into the market (blue). That is an enormous amount of money. That's not to say investing doesn't matter--that 250% return from the market is the lion's share, and the equivalent of 60 years additional work--but comparatively, the market will have increased by over 2,100% during the same 31 year timeframe. If I think about my daughter, aside from helping with fixed costs, if I can just get her set up with a fraction of money post-college and lock it away, she will enter her own later years with an entire other career's worth of accumulated wealth for free.
Takeaways for me on reflection:
* Don't need to be a talented investor or hire a talented investor to build wealth.
* Investing your time somewhere can still produce exponential gains, just along a different axis.
* If you're starting a bit later investing, you might not be missing out on as much of your potential future wealth as you'd think.
* On the flipside, it's easy to have that "oh every dollar will come back 20x" thought in the back of my mind and get lax only DCAing a fixed amount each year instead of really pressing through budgeting for not only proportional, but above proportional amounts of income growth to get invested for the future each year. When fixed loan payments roll off, I don't plan to loosen the belt, but instead throw at least the lion's share into retirement.
The safety blanket of an income is something I'll be loathe to ever give up, but I appreciate everyone, especially those living solely off returns, sharing not just their trades but their experiences here. I've definitely had some things jar an 'aha' moment, like
Gravel
's comment about not worrying about tax implications because he can live comfortably selling below the minimum tax threshold. Will my family need my full current income in retirement, or even close? Something for me to think about.
Gravel
Mr. Poopybutthole
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I'm pretty sure that's what Blazin's post said, as well, and something the early retirement community preaches too. Spending more time maximizing your salary is more important than socking money away early on.
For most of the people here, who are now middle aged, that's likely no longer the case as you're probably hit your stride. But yeah, if you could double your salary in your 20s, it'll snowball in your 30's much faster than just putting away the bare minimum leftover from your entry level $40k salary.
That's not to say you can't do both. But salary increases will absolutely make the bigger difference. In fact, I'd say you'd have a very difficult time accumulating a significant portfolio with a household income of anything less than double the median. Getting rich isn't necessarily only for the rich, but it's also not something attainable for those who aren't middle class either.
As an anecdote for this, it wasn't until our last year of work where our investment accounts starting making significant money. Which, logically, makes sense because that's the point where the portfolio is "working" enough where we didn't have to work ourselves anymore. Everything before that, our invested money itself was always a bigger piece than our returns.
For most of the people here, who are now middle aged, that's likely no longer the case as you're probably hit your stride. But yeah, if you could double your salary in your 20s, it'll snowball in your 30's much faster than just putting away the bare minimum leftover from your entry level $40k salary.
That's not to say you can't do both. But salary increases will absolutely make the bigger difference. In fact, I'd say you'd have a very difficult time accumulating a significant portfolio with a household income of anything less than double the median. Getting rich isn't necessarily only for the rich, but it's also not something attainable for those who aren't middle class either.
As an anecdote for this, it wasn't until our last year of work where our investment accounts starting making significant money. Which, logically, makes sense because that's the point where the portfolio is "working" enough where we didn't have to work ourselves anymore. Everything before that, our invested money itself was always a bigger piece than our returns.
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Sanrith Descartes
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Not disagreeing with you, but there are so many variables involved outside of salary. And not all are in our control. Having kids. The number of kids. Age you have the kids. Setting aside college money for kids (529 etc). Parent/parents needing assistance. A major health issue hitting a family member.
It really is determined by our decisions and fate.
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Carrying sufficient insurance of the right kind is important, too, and under-discussed. The Health Problems thread is full of poster cases of potentially crippling medical debt. I've personally had eight orthopedic surgeries, and I've "profited" many tens of thousands of dollars by taking lower-premium plans with higher deductibles and lower post-deductible coinsurance percentages and managing my own cash flows. Similar for auto and liability insurance. One unfortunate accident can derail years of financial planning.
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Cad
scientia potentia est
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Totally true. A lot of those things can be mitigated by having a high income though. There's definitely something to be said for not having a string of bad things happening or taking on responsibilities you didn't plan for, those can absolutely throw a wrench in anybody's plans. I think the key is to live below your means whether you make $100k or $500k, you live like you made less. Obviously that is a lot easier to do when you make $500k, but a ton of lifestyle creep happens and your emotions want to tell you you've "made it" and can now spend on luxuries... a lot of people fall into this trap, heck most people. I helped with a few highland park divorces and reviewed some 7 figure income tax returns for people who literally had no assets, rented their house, leased their cars, and had credit card debt. But made $1.2M a year. It's unreal. You definitely have to do both in terms of maximizing your salary and using it effectively.
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Loser Araysar
Chief Russia Correspondent / Stock Pals CEO
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,
I'm just happy to see
Cad
contributing in a positive, non-condescending manner. I think that the gaming weekend and my book recommendation ("How to win friends and influence people" by Dale Carnegie) really helped him
That’s weird! Why would people going through a divorce have no hard assets..Araysar you think you could solve this mystery?
I'm just happy to see
Cad
contributing in a positive, non-condescending manner. I think that the gaming weekend and my book recommendation ("How to win friends and influence people" by Dale Carnegie) really helped him- 1
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Burnem Wizfyre
Log Wizard
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Yeah they found out the results of the election, Harris wins and they keep pretending we aren’t in a recession.
Gravel
Mr. Poopybutthole
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We already had the recession (although we could arguably still be in it). They just changed the definition.
But on top of that, government spending has gotten so out of control that it's driving GDP to be positive. If you dumped spending to where it was prior to covid and we didn't have regular $6 trillion spending bills, suddenly you lose trillions in GDP (remember that government spending is a portion of GDP) and GDP turns negative.
But on top of that, government spending has gotten so out of control that it's driving GDP to be positive. If you dumped spending to where it was prior to covid and we didn't have regular $6 trillion spending bills, suddenly you lose trillions in GDP (remember that government spending is a portion of GDP) and GDP turns negative.
Blazin
Creative Title
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Since we measure recessions by GDP it’s hard to go into a recession when the govt is spending like a drunken sailor. If we measured recessions by the financial health of the middle class it would more align with how people feel.
I think even as a measure of “how are we doing” we are not likely in a recession or a rather mild one . Life continues to suck for people without assets but for probably nearly 100% of the people in this thread are at lifetime net worth highs .
I think even as a measure of “how are we doing” we are not likely in a recession or a rather mild one . Life continues to suck for people without assets but for probably nearly 100% of the people in this thread are at lifetime net worth highs .
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Sanrith Descartes
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Blazin
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Burnem Wizfyre
Log Wizard
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I’ve admitted to being a fully functional retard I don’t give a shit what anyone thinks of me I know who I am, but I’ve managed to pull down 150k a year job and my myself irreplaceable. My vehicles are paid off, my vehicles are paid off and both are less than 5 years old, I’m 2 years into a 30 year mortgage that has 18 years left due to paying down the principle every month by throwing $1,500 extra money. I would have done a 15 year for lower interest but I like to err on the side of caution.
That being said my retarded ass who makes 150k a year with $0 debt outside of my house am absolutely fucking feeling it, my checks don’t change but my expenses on food and every day supplies has, my insurance is through the roof, the $1500 I’ve been throwing down on the mortgage each month has gone down to about $600 over the last 6 months you could argue that’s not a recession it’s just inflation but tell that shit to people who make 30-50k a year. I used to go to Colorado or Utah or Montana for skiing or white water rapids but now my ass who lives in Corpus I’m just going to SA to Six Flags or float the comal river.
We might not feel it that bad but I have in-laws that absolutely hate my wife because she’s doing ok and they think we’re rich when I’m anything but rich, shit is a nightmare right now for people, i literally know people who maxed out credit cards to eat, drive without insurance, always a couple months behind on the electric water and car and the bank threatens to repo the vehicle if they don’t get insurance but the vehicle is so massively under water it’s better to hope they pay than sell it for less than what they loaned.
You are much more wealthy than me and a lot more smarter, you might be a bit insulated from it, I work around these people all the time and they aren’t all retarded or had these problems 4 years ago, shits bad out there for people and this pic sums up what’s going on right now for people i work around not with.
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Gravel
Mr. Poopybutthole
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It's strange, because I don't feel like we've felt it that bad at all. Yeah, our groceries are more expensive, but an extra $100 a month isn't really moving the needle. Our biggest expense has always been our house, and that's hedged with a mortgage. But we're on a fixed income (sort of) and so you'd imagine we'd be more sensitive to it, but it's really just not impactful for us.
Although, as I'm typing this, I do need to caveat it with it all coinciding with a move from California to Florida in 2021. I worked an additional 5 months I think after the move, but for the most part our retirement and the move line up. Which means we're basically back to California cost of living from 3 years ago. I know I've pointed out to my wife how pissed I am that we never got the cheap gas prices. While everyone else was paying $1.00 - 1.50, we were at like $3.60 or something retarded. Just as soon as we moved the prices jumped up to the mid $2 range here in Florida. Fucking thing sucks!
Although, as I'm typing this, I do need to caveat it with it all coinciding with a move from California to Florida in 2021. I worked an additional 5 months I think after the move, but for the most part our retirement and the move line up. Which means we're basically back to California cost of living from 3 years ago. I know I've pointed out to my wife how pissed I am that we never got the cheap gas prices. While everyone else was paying $1.00 - 1.50, we were at like $3.60 or something retarded. Just as soon as we moved the prices jumped up to the mid $2 range here in Florida. Fucking thing sucks!
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Blazin
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I agree, my wife and I have had to change behavior due to rising expenses. We had many outdoor projects planned this year that we just had to completely give up on at this time. We are spending a good bit more month more on food than before, our insurance rates both house and home have gone up significantly as a percentage. Our adjustments to behavior hurt GDP, sounds like yours has as well. Is it enough to offset 3 Trillion with a T in deficit spending. The tech giants are highly resilient, S&P earnings can keep on trucking even though many consumers are having to adapt or are worse off.
I pullback because goals are priority so Net worth climbs even when I'm feeling economic impacts. We continue to build an economy that does not benefit working class people, my point is that doesn't mean dire news for the S&P in fact the further we fall into this technocracy the more your and I daily lives will be meaningless to well being of the elite. Corporations with trillions and power bases that are not easily dislodged and they are masterful of sucking up what available capital there is within the system.
Having capital assets is the only thing we have left to try be well positioned for these dynamics. Owning a home, owning stocks, these things allow you to be more insulated. Less and less people are finding their way to that footing.
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Sanrith Descartes
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One thing I would bet shows up in the differences for most people who feel it vs those who don't is credit card debt. People with balances on their credit cards are being crushed. It is literally mind-numbing to think how many people are paying 25% or more on their credit card debt each month. I would kill to be getting a 25% return on investment. House payments tend to be fixed by mortgage, car payment rates are higher, but still sub 10% for most people I would think, vacations and home projects can be downsized/delayed, adjustments can be made to food shopping, but that cc debt is the stake in the heart for tens of millions.
Sanrith Descartes
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