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!
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18 thoughts on “A Relentless March Forward”
How did Ben’s cousin in Japan who just invested in the Nikkei 225 get on?
The “look at Japan” argument is misguided here
The Nikkei is primarily a domestic index while the S&P 500 constituents generate almost half of their revenues internationally.
I’d be much more receptive to a comparison with Ben’s cousin who invested in the all-world index… and guess what?
He’d have done pretty good for himself, too.
Your answer is factually wrong:
According to Morningstar: “The Japanese stock market currently derives 45% of revenues from outside of Japan”
The US is 38% international on a revenue basis.
How does your experiment work for a British investor in the FTSE (75% international), even more international or a French investor in the CAC (82%)?
The entire argument relies on huge hindsight bias with most of the last decade including most of the longest bull market in US stocks ever. All of the time horizons you’ve most end with this period, hardly surprising it creates positive the result shown.
It seems very unlikely the those experiences will be repeated over the next decade with corporate profit margins at their widest in 70 years and Shiller Cape in the 30s.
It also seems unlikely that ‘Ben’ on a salary of $50k, could save 25% of his pay-check and build up housing wealth without touching his savings, where did he find his deposit?
Tom is right – you should be normalizing entry and exit points to get a useful result.
Not quite, because that’s not how investors behave in real life.
Even if Ben retired in March 2009 (instead of delaying by just one or two years), he would not have liquidated his portfolio in one go.
You dollar cost average on the way in – and dollar cost average on the way out for about 30 years, or whatever your retirement horizon happens to be.
There’s international and international. Compare the top companies in the S&P 500 to the ones in the Nikkei:
Apple Inc. (AAPL)
Microsoft Corp. (MSFT)
Amazon.com, Inc. ( AMZN)
Tesla, Inc. (TSLA)
Alphabet Inc. Class A (GOOGL)
Alphabet Inc. Class C (GOOG)
Nvidia Corp. (NVDA)
Berkshire Hathaway Inc. (BRK.B)
Fast Retailing Co., Ltd. Fast Retailing Co. …
Tokyo Electron Ltd. Tokyo Electron Ltd. …
Softbank Group Corporation. …
KDDI Corporation. …
Daikin Industries, Ltd. …
FANUC Corporation. …
Terumo Corporation. …
Shin-Etsu Chemical Co., Ltd.
Which ones would you rather own?
Besides, the Nikkei / FTSE argument misses the point entirely. No one is suggesting going all in on the S&P 500 – it’s just a simple illustration given the historical data is readily available.
Ben would have done very well for himself had he gone with a simple world tracker
Ben’s cousin in Japan was actually advised by Ben’s uncle not to invest with home bias but instead be globally diversified. So Ben’s cousin is might well.
*doing mighty well
Spot on. Why go single country if you can diversify?
Good analysis. There are always going to be periods for one or even two decades where the stock market goes no where. Dollar cost averaging works very well in those time periods. Even in the great depression, someone who dollar cost averaged each month ended up doing pretty well over a two decade period as they invested through increasing monthly lows. I’ve been doing this for two decades and have built up now a £5m portfolio. The daily swing in the portfolio can outweigh now what I can save in a year. Compound interest is really starting to have an effect. The real issue is retiring into a decade bear market or a high inflationary environment. In those markets you need everyone of your dollars working for you to combat those negative scenarios. Hence why the 4% rule comes under major strain in those situations. Could be what we face today. Who knows. I’m not smart enough to predict it.
Agreed. The compounding fun really starts once you’ve clocked a couple million in your portfolio.
Am sure you’re happy with your investing approach over the years, notwithstanding all the fear, pain, and noise out there. I sure am with mine.
Onwards and upwards!
Wait…so Ben is 24 and you’re asking what if he started investing 3 decades ago? Yeah, I’m pretty sure I could be a millionaire if I started investing before I was born! 🙂
Hah, not quite
But if you are 24, I’m asking you to start investing – so that you can be a multi-millionaire with very limited effort down the road
Is there safe to assume market will always go up? Since compounding to infinity is not possible, can stock market be stagnant as population growth/productivity slows/stops?
The short answer is absolutely yes
The long answer merits a post of its own 🙂
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