In today’s post, I’d like you to meet Ben.
Ben is 24 and fresh out of college. He didn’t go to a fancy school or target an incredibly well-paid profession like investment banking or consulting.
He did, however, graduate with decent enough grades to land a “regular” corporate job that pays him $50k a year and provides some earnings upside over time.
Ben likes to keep things simple. Thus, he only has a few simple rules when it comes to personal finance.
He saves 25% of his after-tax pay and spends the rest on whatever his heart desires.
Whenever he lands a raise, Ben saves 50% of the after-tax amount and uses the rest to reward himself even more.
And while Ben isn’t obsessed with making millions of dollars a year, he is strategic about his career.
Strategic enough to get a 5% raise a year – some of which accounts for inflation, with the rest a function of Ben’s ever-improving skill set, seniority, and willingness to look for a new job every once in a while.
Finally, all of Ben’s savings go straight into an S&P 500 index tracker.
And… that’s it. Ben gets on with living his life, without spending too much cognitive energy on personal finance.
Let’s now take a walk down memory lane to see how Ben would have fared over the years.
Assume Ben started his journey back in 2010, on the back of the post-GFC meltdown – and more importantly, one of the most impressive bull markets in history.
This is where Ben would have ended up today, in August 2022:
Ben is now 36 and is sitting on a portfolio of $400k. Not too bad for someone who isn’t even clocking six figures a year (yet).
In case you’re wondering, that’s an annualized return of 13.3%. God bless the bull market!
The Lost Decade
Let’s rewind the clock a bit further back. How about we go back to the early innings of that famous lost decade in the US stock market?
Had Ben been obsessed with tracking his brokerage account, it would have been a painful journey early on. Heck, he might have even stopped investing altogether.
But he didn’t – because while investing is interesting in theory, there are better things one can occupy themselves with. Like travel, sports, dating, and possibly even starting a family.
Still, if Ben was to check his brokerage account today, he’d see a cool $1.1m staring right back at him.
Not too bad for someone who turns 44 this year.
And in case you’re wondering, Ben only crossed $100k in annual comp a couple of years ago.
Ben’s annualized return? 11.1%.
The Golden Years
What if Ben’s journey started even earlier, let’s say three decades ago?
I’ll spare you the trials and tribulations – because the numbers speak for themselves.
An impeachment, a couple of nasty wars, three tough bear markets, and a pandemic later, Ben is ready to retire.
His portfolio balance? $2.7m.
An annualized return of exactly 10%, trending down towards those long-term averages.
And by the way, these are just the baseline numbers.
They exclude any windfalls or inheritances Ben may have received along the way, any housing equity he may have built up, or any financial contributions Ben’s wife may have made on the journey.
Oh and yes – Ben is just 54.
All Around You
As I’m sure you’ve figured out by now, Ben is a totally made-up character.
He doesn’t exist – and yet he exists all around us.
Ben is that classmate of yours, just finding his feet as a recent graduate.
He’s that young father you keep bumping into at your children’s birthday parties.
He’s your older colleague at work, not exactly a superstar but a nice guy who works hard and does a good job.
And possibly, just possibly, Ben is YOU.
Someone who ignores the noise.
Who doesn’t listen to people without a single dollar to their name – but a million reasons NOT to invest, because “it’s just not a good time right now”.
Someone who has a reasonable savings rate that strikes the right balance between living now and taking care of the future.
Who invests early and often, buying index funds on autopilot.
And retires early and wealthy.
The choice is yours for the making – and the prize is yours for the taking.
As always, thank you for reading – and happy investing!
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
Find out more about me and this blog here.
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