As the old saying goes, a picture is worth a thousand words.
Hence, instead of me typing (and you reading!) 20,000 words in one sitting, I wanted to kick off the year with something that’s a lot more fun, digestible, and inspiring.
It’s a mix of old and new, featuring content from some of the top personal finance bloggers out there as well as some awesome responses to this Twitter thread.
Enjoy – and get ready to take your personal finance journey to a whole new level!
#1: The Only Thing You Need To Know About The Stock Market
Sadly, millions of people will never invest in the stock market because they are so damn worried about their money.
If you are in that boat, or know someone who is, please show them the chart below:
Yes, on a daily basis the stock market is kind of like a casino, albeit one in which the odds are slightly in your favour.
But extend your holding horizon to 20 years and it quickly becomes a sure bet.
As long as you don’t sell.
#2: Future Stock Market Returns
We’ve had a tremendous run-up in the stock market over the past decade.
What does that mean for future returns? Here’s Vanguard’s take:
Source: Vanguard / Banker on Wheels
In other words, don’t ditch that world tracker just yet…
#3: Is The S&P 500 Overvalued?
Perhaps. When earnings plummeted in 2020, the price-to-earnings ratio mooned.
But 2021 looked drastically different. In fact, earnings grew so much, that the P/E ratio has actually compressed.
Here’s another good one from Banker On Wheels:
Source: Bloomberg / Banker On Wheels
#4: The Best Hedge Against Inflation
Worried about inflation? You should be.
It’s a stealthy, ruthless killer that can quickly put your dreams of building wealth six feet under.
The good news is that you have an amazing ally to fight it off:
Source: One of my Twitter followers / original unknown
Yes, there are other ways to hedge against inflation. But few match the magic money machine.
#5: The Big Disconnect
Historically, government bond yields served as pretty accurate indications of inflation.
Source: The Irrelevant Investor
There are many implications here, but to me, the most important one is as follows:
In a world where inflation runs 5%+, borrowing money at a fixed rate of 1-2% is an absolute no-brainer.
#6: Want To Lose Money? Then Do This
I used to think there was only one guaranteed way to lose money in the market (at least on a relative basis).
Alas, there isn’t. Here’s a pretty sure-fire way to come in below the benchmark:
Give your money to an active manager.
Source: SPIVA / A nice person on Twitter
#7: No, The Hedgies Won’t Save You…
Think you can beat the market by investing with a hedge fund?
Well, have we got news for you:
The S&P 500 has returned 29% this year. Only 3 hedge funds on this list have beaten this.
Thanks for playing! https://t.co/NHemqfSOkq
— Nick Maggiulli (@dollarsanddata) December 30, 2021
Thanks for playing – and for paying!
#8: …But The Dividends Will
I have my own views on dividend investing which can be summarized as follows:
Amazing stuff as long as you don’t let the tail wag the dog.
That being said, it’s also true that historically, the VAST majority of stock market returns came from dividends:
Source: Nick Maggiulli at Dollars and Data
#9: … And They Are Back With A Vengeance
On a related note, here’s the absolute torrent of cash dividends being paid out to shareholders worldwide every year:
Source: Not sure but possibly AWOCs
On Financial Independence
#10: The Most Important Determinant Of Financial Independence
Here’s the OG of personal finance charts by none other than Mr. Money Mustache himself.
It’s about financial independence, and the fact that reaching it boils down to one and one thing only:
Your savings rate.
Source: Mr. Money Mustache
#11: Losing Your Job In 10 Years
You could also do a different take on the original chart above.
This one accounts for the fact that your spending habits will likely change once you retire.
This is how you figure out the savings rate that will help you retire in just ten years.
For more context, read this post
#12: When Does Your Net Worth Start Going Crazy? After $100k
There are many different versions that illustrate the power of compounding, but somehow this one resonates the most:
Source: Four Pillar Freedom
It’s true that the first $100k feels like an absolute slog. But there’s a massive prize for those who manage to clear this initial threshold.
Your portfolio seems to take on a life of its own and your net worth begins to snowball in ways that can transcend your wildest expectations.
#13: The Fastest Way To Save 100k
Inspired by the chart above? Want to reach this magic territory ASAP?
Well, here’s the fastest way to accumulate that first, elusive 100k:
#14: How To Make Your First Million
Want to have more than just 100k? How about a million?
There’s a step by step guide for that:
#15: The Role Of Savings vs Investments
Early on in your journey, it’s all about how much you save.
But over time, your money starts doing more and more of the heavy lifting.
Here’s a great visual illustration of the declining importance of savings – and the growing role of your investments:
Source: Four Pillar Freedom
#16: When Your Money Makes More Money Than You
Did you know there will be a time in your life when your money will make more money than you?
More importantly, did you know that this time will come irrespective of how much you make? All you need to do is maintain a consistent savings rate.
For someone making 40k and saving 25%, that point will come in 21 years:
What about someone making 400k? The answer may surprise you.
#17: The Most Important Chart In Investing
The chart I wish I saw when I was 18. Enough said:
In a nutshell, the contributions you make before you turn 30 will account for more than half of your portfolio at retirement.
Let that sink in – and then get on with it.
#18: It’s Never Enough
This is one of the most striking personal finance charts I’ve come across last year.
The best title for it would be simply “Never Enough”:
When you have $1m, you want $5m.
When you have $5m, you want $10m.
Beware of the moving goalposts.
On Not Being Duped
There’s only one chart in this category, but it sure is an important one.
#19: Rich Authors, Poor Readers
I’m a pretty relaxed guy, but the people who absolutely boil my blood are the populist characters who call upcoming crashes in order to scare people into following them (or worse, buying something from them)
Here’s one by Robert Kiyosaki – and an excellent writeup by Nick Maggiulli explaining why this will never stop.
Source: Nick Maggiulli over at Dollars and Data
If you want to make the right investing decisions in life, please give this one a good read.
#20: One Percent Is All You Need
We’ve now clocked 19 personal finance charts, each one inspiring and insightful in its own way.
Thing is, if you are new to personal finance, it can all get a bit overwhelming.
You get inspired, try to do too much, too soon. Then you get disappointed and give up.
Clearly, that’s NOT where you want to end up.
So let me wrap up with the most important chart (special shout out to TEA who reminded me of this one):
Source: James Clear / Atomic Habits
No, you don’t have to do everything at once.
Instead, focus on getting just 1% better – but do that every single day.
If you manage that, 2022 will be your best year yet.
And since you made it this far, here’s a bonus chart for you:
Source: The Irrelevant Investor
As always, thank you for reading.
About Banker On Fire
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Banker On FIRE is a London-based 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.
If you are new to investing, here is a good place to start.
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