It's kinda cool that he mentions the kids throughout.
So many greedy people feel attacked by this kind of thing, and react to the implicit allegation that they're being wasteful with condescension, muttering about the selfishness or oddness of not having kids, or then again about how much of a difference having to support a family makes and how unrealistic idealists are.
As I heard it said once, Lawful evil: "I did it for my family".
Cool, this is the FreeDV / Codec2 guy, did not know this side. Might find his commentary on Codec2 patent issues as interesting as his financial planning commentary.
> Until age 38 I was very focused on material accumulation. I had a Porsche 911 (called Helmut), several investment properties, a wife, and several pairs of trousers.
Is anybody else disturbed by the inclusion of his wife in his list of material posessions?
No. He's realized the errors of his past ways and his thinking which included treating a human like a possession that is slightly more valuable than a few pairs of trousers. That's the joke. Sometimes jokes are hard because they reveal the dirty reality underlying them.
The tone of the article is one of humorous self-deprecation, which is quite a common trait amongst Brits and Australians; to me, the inclusion of "a wife" in that sentence seems no more strange than his mention of "long pub lunches" as a highlight of his previous career in industry.
I think he is alluding to the fact that a separation or divorce is most likely what prompted all this and perhaps his wife was a driving factor in their mutual accumulation of material things back then.
S&P 500 average return since the early 1900s has been 12%<. But... that includes volatility. Still it doesn't seem like an impossible number - the past 6 years have all met that growth target.
Total return is ~4.3% nominal ~2% real annualized since Jan 2000, ~7.5% nominal ~5.4% real annualized since Jul 2005. Total return isn't a perfect measurement (particularly due to taxation of dividends), but its a much more useful number. Over a long term, dividend reinvestment makes a huge difference.
"The S&P 500 index in its present form began on March 4, 1957" says Wikipedia.
And its return since the 50s is 7% in real terms. And there were decades at a time (including the 2000-2010 period, where real return was -3.4%) that significantly underperformed that), so it's not even a reliable 7% a year, which you'd need for these calculations to work out.
It began in 1928 in its original form. I mentioned volatility in my original comment - but if you have a large portfolio and low expenditures you can afford many down years.
"The past 6 years" means you're starting in 2009, which was the depths of the recession. If you look at the past 8 years instead, your average return would be a lot less, especially if you had to take out money to live on while the index was at the bottom.
On an inflation-adjusted basis, the S&P 500 has not grown at all for the past 15 years:
The average rate of return for the past 50 years is pretty small. You can make almost any rate of return look reasonable if you cherry-pick the right timeframe, but the long-term average doesn't look good at all.
That chart doesn't take into account dividends. At the end of 2014, the 15 year annualized return of the S&P 500 was 4.24%. The 20 year annualized return was 9.85%.
SO, while you were claiming the above poster was using bad numbers by using "the last 6 years," you are similarly using biased data by looking at the past 15 years because that's the eve of the dot com bust.
The annualized return for the past 15 years with both dividends and inflation is under 2%.
I know that I'm cherry-picking by using a 15 year period. That was my entire point: that you can cherry-pick to find almost any rate of return.
However, that particular period is still pretty relevant. If your plan is to spend 10% of your savings per year, then a 15-year period of zero (or just small) returns will wipe you out. Even if it bounces back afterwards, you're still screwed.
I used this calculator to compute the CAGR for the S&P 500 from 1995-2015. It calculated the average annual return to be 11.5% before inflation so roughly 9% after. You are correct that 10% is difficult but you can get really close.
CAGR isn't really relevant on a per-person basis, though. It's not like we all receive our investment capital as a lump sum at the beginning of our savings history. This actually makes a huge difference and makes CAGR returns unrealistic.
I think you are looking at the arithmetic average, which isn't very useful for the following reason:
Year 1: 100% gain
Year 2: 50% loss
The arithmetic average here is 50%, which the geometric average is 0%. The CAGR listed is going the correct metric to use but that is not 9% after inflation using the date range you provided. I get 7.42% for 1/1/95 - 12/31/14 after inflation and dividends are factored in. Not bad by any stretch of the imagination, though!
It's cool that this guy is doing things that make him happy. But I'm extremely confident that he didn't do this by following the financial plan he blithely gives.
Because a) good luck finding an investment that'll give you 10% consistently for decades, and b) even with that magic risk-free return, his plan takes 20 years (or 22 if you somehow don't have $10K stashed up as a youngster) and then c) leaves you on the edge of your expenses (as he defines them) and reliant on that consistent 10% return continuing forever.
"Hey, if you find a magic investment, you can retire at 47 and then live in constant fear of penury!"
I don't think you need a magic investment. Find a way to live on half of your after-tax income, save for ten to fifteen years the additional amount and put it in large, relatively safe dividend stocks (DJIA is a good place to look). Then you have retirement at the same level as pre-retirement with about a 4-5% withdrawal rate even if your investment returns only average about 5% per year through the accumulation and disbursement phase.
A 5% arithmetic average nominal return over a multi-decade time horizon is not too difficult to achieve with even fairly low risk tolerance for undershooting the target. Change any of those qualifiers and it becomes a different story.
It wasn't too difficult to achieve, but past performance is no guarantee of future performance.
Already that's looking far less true if you look at the past decade or two, but it's still the received wisdom because it's what people enjoyed in the past.
The FTSE 100 hasn't peaked much higher than it peaked in 99/00, and in real terms still hasn't closed as high as it did back then.
Since you were careful to talk about nomimal return, this is then further reduced by the effects of inflation. A 5% nominal return might well be easy in an environment with a high inflation rate.
I'm not suggesting that people shouldn't invest, people clearly should invest as part of a mixed portfolio, and because cash returns are typically even slower, but the original article here is unrealistic as a goal.
Edit: Dividends help too of course, they aren't tracked into the index whereas it is possible to reinvest them back in if you don't take them as income.
I'm not denying that some people can get lucky with market timings and it works out well for them, and in fact there's the whole boomer generation it mostly worked out very well for, but it does no good to the next generation to account it all towards their actions and not account for any kind of good fortune in timing.
I don't disagree with your points. In particular, I think real return, averaged geometrically, is a better number to look at and design these calculators / spreadsheets around. When you do that, the numbers end up looking quite a bit less cheerful, and as a side effect the big advantage of equities over debt erodes somewhat.
The other thing that the frugality and savings über alles crowd neglects to mention is that different people have different preferences (and that's okay!). Including preferences dealing with intertemporal discounting. It's one thing when you are trying to develop pithy messaging aimed at the general public and quite another to make un-nuanced arguments in forums that allow for them.
If you're getting sick each year (or a long-term illness) and it's costing you your $15k/yr savings, I think many people would be screwed when it comes to covering the costs.
Kids are a choice - but even with kids one can still live frugally or prepared. For example, choosing to not have a child until you've accumulated enough savings to cover all of the extra surprise costs that can occur that most people don't plan for when having a child.
My father worked two jobs to barely make ends meet for 8 years because his financial planning revolved around a family plan that he didn't actually plan for. My family plans are actually planned and revolve around my financial plans. One problem I see people make is that their financial plans revolve around their family plans (or lack thereof).
No surprise child at 18 years of age. No poorly-planned "I think I'm ready but I'm not actually ready" child at 21-23 either. I've seen very, very, very few parents under the age of 25 that a) planned for their child and more importantly b) properly planned for their child.
Lack of planning - or having a poorly crafted plan is what is "risky" or "doesn't scale".
As someone who has a serious medical condition and has altered my lifestyle to get healthier, I think "don't get sick" is more of a choice than most people seem to believe. And "don't get sick" -- or, more accurately, get my sorry ass well -- is, in fact, the big foundation of my financial plans. I am not where I want to be financially, but I am making poropgress towards my goals, including paying down debt.
Saving is not the issue. The issue is trying to retire on low incomes.
If something happens then finding a good job when your older and have not worked for a while is hard. So, IMO your better off trying to get a significantly larger nest egg than you think you need. That way compound interst works for you and you don't risk poverty while your old.
It does scale. Low expenses mean profitability can take major hits and still work - in both companies and humans.
That $15k figure includes healthcare paid for and its very possible for a family to raise children on less than $30k combined. Choosing your partner wisely? That's important.
I don't understand your incredulity. People have lived and self-actualized on less than the $15k/yr equivalent forever - when did it become impossible? And why do you think so?
Before I switched careers and started having an actual income, I was able to count on about half of $15k of income.
Dave Ramsey says, "Live like no one else, so you can live like no one else." He means, save aggressively and retire comfortably. I was already living like no one else: no car, no concerts, rarely seeing movies or eating out, no fancy clothes, avoiding doctors, less than $15 cell phone plan. And my expenses still exceeded my income. It is not so simple and easy for everyone to have savings.
Exactly - what people fail to realize is that $1 spent today means $4 more they'll have to save for $30. I equate EVERYTHIGN i purchase to cost 4x more than it does - because it costs me that in future value.
Shouldn't be a problem for a large portion of HN's readership. Those who aren't in school or building a company are likely to have a tech job that pays beaucoup bucks.
I live on less than half of my (modest for a tech job) after-tax income. Paying student loans down aggressively has become a higher priority than having a bigger place or going out all the time or owning a nicer car. And once the student loans are gone, I intend to keep it that way. There's a lot of security to be found in frugality, it's not just about being ascetic for its own sake.
I make a typical tech worker salary between day job and a small amount of consulting I enjoy. My wife and I lead a very modest life. I work remotely. We save ~70% of our after tax income (and we fully fund tax advantages retirement accounts yearly). My mortgage took about 4 years to pay off. I'm 32. I will retire in 4-6 years (ie work on projects I want to full time, for no income if I prefer).
What's hard about it? Assuming the average here on HN is making $150k USD at a cushy programming job, let's say 100k after taxes. You're telling me you can't live off $4100~ a month? I live off $2500 a month easily (1500 rent, 500 food, 500 fun, debt free - no car - no other expenses) and the rest goes in the bank.
It is true that this is magic for the majority of the population.
However, for most of the members of this forum saving half your after-tax income is perfectly reasonable. I would wager that 90% of the people on this forum makes at least 2x the median income for their location (unless you're based in SF).
So for most people on Hacker News, saving half your post-tax income means just means living an average lifestyle at worst.
Really don't think it's that hard. Plenty of engineers pulling 6 figures, which is well over double the national average (even accounting for tax).
A lot of people would just prefer to spend that money living in a nice place, and enjoying certain luxuries, but it can definitely be done on the kind of income a lot of HN readers are earning.
He mentioned at least once that he does consulting occasionally. The point is that the passive stuff pays his base expenses and gives him freedom of choice, not that he can go hog wild all day everyday on strippers and blow with no consequences.
The numbers are definitely misleading, which is unfortunate because it takes away from the message, which is decent I think. You need to save far more than $5k/year to retire early, not much of a way around that.
I remember a few years ago the saving interests in Australia was around 8% plus. That was risk-free rate, if you take a bit more risk on other financial products, 10% might be achievable. Not feasible for 20 years though.
I don't know the history of Australian interest rates but the only time US interest rates were at that level was during the inflationary times of the 70's.
This link says current interest rates are 3.5%. [1]
Looks at "https://en.wikipedia.org/wiki/S%26P_500#Price_history" the returns table at the bottom. It's not 10% every year but this is long term investing but a get rich quick scheme to look at any 20 year interval. It averages more than 10% and isn't exactly obscure.
Okay, so I'll make a spreadsheet where I assume a 50% annual return and then show it's so easy to retire in less than 10 years! For ANYBODY! On only $50 per month of savings! YOU'RE AN IDIOT FOR NOT DOING THIS!
The point is that eventually a quantitative difference becomes a qualitative difference. Few people can make a 10% annual return and many, many fewer still can make a 50% annual return. But if you just buy index funds, it's fairly straightforward for just about anyone to make a 4% annual (real) return.
Given the gigantic difference in how these curves grow over time, it's entirely fair to point this out.
Even then... which index funds? At what allocation? And how often to rebalance? It's still way too easy to try and get into timing the market even if you just stick to index funds.
That wasn't the point of the article, and you can get more than a 10% return. Sitting in the public markets doing what everyone else does wont' get you there. I've been down voted because of everyone's limited thoughts in what it takes to achieve this. Why do I know this? Because I'm in a very similar position as the author.
Untrue, life isn't a set formula of do X then Y then Z. He's laying out a rough guide, not an exact plan. You can get more than 10% in smaller scale investments (eg: not high risk) - but not in traditional methods. You have to think further than "invest in stocks".
Index funds would probably do the trick - they are higher risk, but as long as he's living below his means and has a decent emergency fund he should be OK? Especially since he maintains his employability and could get a 40hr job to pay the bills in a pinch.
EDIT: I'm not sure why I'm getting downvoted here, he's talking about investing over a 20 year period - it's not unheard of to value an S&P index fund at 10% over that period!
A whole lot of them. Since inception the median 20 year annualized return is 11.92%. Back out 2% inflation (on average) and you'll see the median 20 year annualized return is 10%.
Every time I read one of these articles, they seem to have a briefly mentioned assumption of an unrealistic investment return.
I have a script I like to run that receives as input my retirement-contribution history - amounts and dates. It pretends I simply bought VFINX every time (using adjusted-close history to account for dividends) and tells me the resultant APY. As of today, over a 20-year history, that would be 8% nominal. Factor in inflation over that time and it's below 6%. And if you were to graph that out, probably 90% of those monthly data points are much lower.
People in general aren't going to have the discipline to stay in the S&P-500 since it is so volatile, but any other approach is in effect trying to "beat the market" which doesn't work. I didn't stay in S&P-500 and my personal APY is lower.
The fact of the matter is, people tend to have more money to invest when times are good (and market is high), and less money to invest when times are bad (and market is low). So they're by definition not going to be able to match "historical stock market averages". So any advice from these many articles and blog posts basically come down to "in investment performance, be an outlier." Well, sure.
The picture shows 'after inflation', and the rule of thumb is indeed a 4% redraw rate, so the graph seems about right. At 4%, you will keep your capital. At lower rates, you will burn some capital, but not enough to go bankrupt, unless you are really unlucky (last part was also calculated).
So in my opinion, the graph confirms the rule of thumb.
10% was an example to simplify the model. Achieving the same goal at a reduced return involves either putting more money in or waiting longer. It doesn't invalidate the model.
It also just so happened to quintuple his returns. Not exactly comparing apples to oranges when you have a 4% (realistic) v. 10% (unrealistic) return built into the model.
Assuming 10% risk free return is more like designing a tank and assuming the armor is an order of magnitude stronger than it is.
First, let's cover the tank in 10mm of it, which will give us all the protection we need. Freeing up that much room gives us more space to put a bigger gun on it. After vastly reducing the weight, even more so because we don't need to carry as much fuel, we don't need tracks, because an 8 wheel variant gives sufficient traction.
Oh, and since our new highly mobile and effective vehicle now costs a tenth as much, all the other expensive and slow vehicles taking on other roles in the army can be deprecated.
In fact, let's design a variant that carries fuel. In this way, instead of having 50 tanks advancing 100km per day, we can have 500 of our new vehicles advancing 500km per day, with the same firepower and effective armor, completely overwhelming any opposition. Why has nobody figured this out before?
OK, so, after we've taken the base assumption and followed the chain to its logical conclusion without error... we have nonsense. After realizing our mistake, and factoring in the real value for armor, our design and plans for reworking the army are absurd.
"Waiting longer" at 6% means 82 years to achieve the same returns as 50 years at 10%. But if we include 2% inflation as well, 6% takes 97 years to match 50 years at 10%. One of those is planning for your retirement if you're young... the other is planning for that of your grandchildren.
I agree about the 10% return being unrealistic, but I don't think $10,000 per year is right either. His spreadsheet shows $474,000 after 20 years. A 4% withdrawal rate on that is $18,960, which is still not exactly lavish, but more than enough to live on where I come from. Especially if your house is paid for, your healthcare is covered and your car doesn't break down very often. That's actually pretty close to my annual expenditure, and I rent, have to pay for health insurance, and my car breaks down all the damn time.
You can't usually count on consistent returns, no, but as an average return that's pretty safe (assuming a mix of equity and bond index funds). My mutual fund have averaged that much in the past ten years, despite two major stock market dips when they went negative.
The 10 year US bond is often used as a risk free rate and it's about 2.2% right now if I remember correctly, and it's been as high as 3% in the past five years. And of course you can sell bonds too so it's not like they're illiquid, it's generally known as one of the most liquid markets on the planet.
But there's a bit more risk than than a 3 month bill of course which is also used as a risk free rate indicator quite a lot, and that's really low with inflation being so low right now.
Anyway I wouldn't call 4% incredible but it's definitely good and something many would be quite happy with.
> The general rule of thumb for stock market returns is a 7% real return.
Over the 15-year period from 1966 to 1981, the real annualized rate of return in the stock market was -0.4% because of high inflation. You need to look at 20 to 30 year periods to get into the range of 7% real annualized returns across the 20th century. And there is the general issue with using the past as a statistical predictor of the future when the time window's length is a large fraction of the 20th century. Not to mention extreme outlier events whose level of impact isn't represented at all in the historical data.
A good book to read is Siegel's Stocks for the Long Run.
Yea, he pretty much lost me at "Go invest your money at 10%, you figure out how to do that!" He's assuming no variability (constant N%) so he somehow has found a consistent, risk-free 10% return! Incredible! For comparison, 1-year US Treasuries are around 0.36%, which when plugged into his chart would add up to $175K after 20 years, not $475K. Big difference.
I'd think 6% is more reasonable, 7% is very often touted as the long-term inflation adjusted figure for e.g. S&P500 returns but as others have pointed out, there's reasons to believe it won't be quite as sunny down the road.
10% inflation adjusted I'd think is pretty ridiculous, either it's short-term, not inflation adjusted or he's a one in a million financial miracle worker, but you can't not have any of them. Actually the S&P500 return since inception is about 10%, maybe he's referencing it. But the real return of 1950 to 2010 or so has averaged about 7%. And that uses CPI numbers which may underestimate price increases, particularly in some areas. (e.g. you probably want a better ROI than the national average in hotspots like San Fran considering you need to keep up with things like housing price increases if you're investing in stocks and living off of the returns).
But even there you need a strong stomach as these are just long-term figures in what in reality is a volatile market. It's pretty trivial to talk about a 'the real returns of 12% in the 1980s offset the 0% real returns of the 1970s' and conclude 'oh the average return ended up pretty good around 6%', but it's another thing to actually live through the 1970s, experience ridiculous inflation and stock returns that can't keep up, and sticking with your 'live off of capital' strategy, when nobody promised the 1980s would be different and you have a kid who's going to college by then, a spouse etc.
The "long-term" averages you often see quoted are dangerous to go by.
1. They usually cover about 100 years. If you're starting out your career you've probably got about 40-50 years of saving followed by say 20 years of retirement, i.e. your training data is not much more than the period you're trying to predict.
2. That history is primarily over the period of world history that can be summed up as "cheap oil". Personally I wouldn't use it to predict any other time period.
3. If you look at the returns over time, they're pretty much generational. Some generations get fantastic returns from the stock market, while others at best are keeping up with inflation. If you started investing in say 2000 you probably know which category you're in.
> I am not convinced there is any significant advantage from private schools
I don't know what the schools are like in Adelaide, but in much of the U.S. the impetus for sending kids to private schools is not the quality of education per se, but the quality of the students. In Baltimore, where I live, you can either send your kids to private school, or send your kids to a school where some significant fraction of everyone is in a gang. Or you can move into one of the exorbitantly priced suburbs, increasing your carbon footprint and contributing to the exodus of middle class people that makes schools in the city such a disaster to begin with.
By sending your kids to a private school, aren't you contributing to the exodus from public schools that make schools in the city such a disaster to begin with?
It's a collective action problem. I'd love for all the parents of my generation to move back into the city and send their kids to public school, so we could have schools where middle class values and culture dominate. But I won't if everyone else doesn't. The cost of that is potentially quite a bit more than the cost of private school: http://www.telegraph.co.uk/news/uknews/1549711/Children-lear....
I get that, I just meant to point out it's a collective action problem in both cases. There are different trade-offs for you personally though which might make you pick one over the other.
Of course you are. But it's multiplayer Prisoner's Dilemma. You cooperating won't magically make everyone else start cooperating, it'll just mean that you're on the bad side of a cooperate/defect rewards box.
Totally agreed - the lowest common denominator level of teaching is what hurts even if most students are not in a gang but aren't as academically inclined. Some public schools are starting to address this by having separate tuition for 'gifted' students.
How vague is this article? Ok, he sits around all day "hacking" (an already overused term) without any mention of how he got any income in the first place, only how his investments are working out. Pretty useless.
A lot of people seem to be attacking his numbers and his advice etc. But even if his explanations and suggestions are complete bunk, the fact that he's doing it serves as an existence proof that this kind of life is achievable. So if you're attracted to this kind of life, take it as evidence that not everyone works forever, and you can figure out how to do it too.
Are people unaware that early retirement is a real thing that happens to real people?
I thought everybody already knew that it was possible in theory to retire early and spend a big chunk of your life not working. The hard part is figuring out how. The article's implicit advice of "get a highly paid job as an executive at a big company, and find investments which reliably return 10%" is useless for that.
At basically every moment, relatively safe investments with 10% real yields do not exist. For an investment to be relatively safe and give 10% real yield, that means that the economy as a whole has to grow at roughly 10% per year.
That'd be awesome! We all would like that! But it's not something that ever really happens. Maybe if we discover strong AI or something.
> In Australia the government gives much of the population “middle class welfare”, a few $100/week which covers much of my food and bills. We also have free public health care. So the country you live in helps.
I imagine that has to play a HUGE part in how he's able to stay out of work. If it's exactly "a few hundred a week" that still adds up to ~15,600 a year. I know the cost of living is pretty high over there but that's a really healthy chunk of change to be able to count on.
I very much support that, but I don't think it should be part of his equation. I'm totally for supporting those who need it, but making an equation saying 'look I don't need to work as much, I can live off of interest from $400k in capital and government welfare and a bit of work' obviously makes no sense, even if you take out the capital. Welfare shouldn't be part of any equation of how to make a living because it's a priori meant to be an exception for those who can't make a living, unless the country is on basic income which no country is as of yet.
It is all about the savings-rate. If you save 50% of your net-income, you can take one month off for every month you work. If you have a ~80% savings-rate, you can take 8-9 months off for every month you work.
Most people can not quadruple their income, but it is technically possible to live on way, way less than most people think. The guy in the post claims his expenses are 40k/year for a 2.5 person household. That is 16k/year per person, which is low. But it can be lower than this. Check out Jacob from http://earlyretirementextreme.com/how-i-live-on-7000-per-yea..., he lives off 7k per year in California and retired in his early 30s.
Oh look. Another wealthy person lecturing on the wisdom he has learned through wealth, that wealth is secondary to happiness and should be avoided. For the rest of us, lack of money is the root of most stress. Those with dependants cannot simply remove them from our lives (where is this guys wife now?). Our lives are not diminished by opportunities lost because we spent too much time at the office. They are diminished because we don't have enough money to pay the bills --> because we are not able to spend time at the office --> underemployment.
I actually believe the 10% reference. But I also believe that he isn't being honest about where it is from. I smell a spendthrift trust or investment property that his is milking (ie taking rents but not paying the mortgage.)
If this sounds like a rant, it is. I'm spending all day doing RSA submissions. I do this to chase business/clients/pad my resume. It's yet more time spent chasing work rather than actually doing the work. Welcome to the gig economy.
> In Australia the government gives much of the population “middle class welfare”, a few $100/week which covers much of my food and bills. We also have free public health care.
You don't need much when you have a social safety net, freely given to anyone who needs it.
He gets that middle class welfare due to his child. As a single male professional in Australia, I see none of that middle class welfare, unless I start speculating in real estate or taking advantage of superannuation concessions.
It's also a factor of what you choose to do in life. I don't know your specific circumstances - but as an attorney you probably took on a heavy debt load that adds bills that many others don't have. Many lawyers I know are chronically underemployed - and yet many more are going to school to compete with that diminished pool.
Other than perhaps older parents are dependents a choice for most to take as dependents? If so - a non-financially-productive dependent is like a second mortgage - but it was a chosen one.
I actually saved up a small pile before law school. With a scholarship I graduated without student loans.
I have no dependants and that was a choice by me. But I have had many clients for whom having children wasn't much of a choice. Even if it were, circumstances change and they cannot be cut away like an underwater mortgage.
Yeah, you're right. Every challenge you face is insurmountable. You're doomed to work your whole life and die penniless and there's nothing you can do about. That's too bad for you.
I think the plan is patience and discipline. For some it may be to invest money over 10 years. For the average HN user it may mean to have the discipline to create a paid micro saas which requires little time to manage and keep working on it for several years. Invest $100 per week, or invest 2 hours per week, and grow your paid service x% yearly.
"invest at 10% (you get to work out where)" if you could really do this you wouldn't have to work (at the current rates environment). You could start selling bonds for say 7% return and collect 3% for free!
Perhaps it would be a lot easier to live as one pleases without having to pay the taxes required to subsidize $100/week and free health care for others.
Perhaps it would be easier to earn a decent return on investments if your government doesn't subsidize borrowing so much that you earn less than a dollar a year in interest on your bank deposits. Maybe Australia doesn't do that and its banks pay a decent interest rate as a result?
Without individual action, a great many things would not exist.
Some would say the point of having a society is to have rules that allow us to peacefully co-exist and trade with other. Its not to allow some to take advantage of others.
Isn't is weird how some people in this thread say that the guy can only do it because of Australia's generous social programs. Meanwhile you think it would be easier if these didn't exist and taxes were lower.
In reality I bet it's about as easy no matter what country you live in and what tax rates or social programs you have access to. Simply live a somewhat frugal life, save lots of money, and let the magic of compounding work over a decade or two.
Rather than looking for excuses it's probably better to just get started.
It seems that most people are immediately pointing to why the author is wrong or that his numbers are incorrect. I think we are missing the broader point that spending less than you make and saving consistently for 10+ years is going to help you have the financial freedom to work less. Save 15% of your income into retirement and you will be set.
Another key point is to stop thinking that there is good debt (i.e car loan at 2%) and to stop the 'keeping up with the Joneses' mentality. If you need a loan to buy something besides a house, you probably can't afford it. Being debt free can give you a mental and emotional peace that is hard to find elsewhere.
The point is well taken, but sitting on my couch in PJs everyday would definitely make me very, very depressed; economic freedom or not. I'm very sincerely happy that this guy found his way, but I can confidently say that this is not for me.
Exactly. A lot of people here are mistaking the trees from the forest (as programmers are wont to do), but the guy seems to be doing it, so he can't be that far from the truth.
Is it really all that interesting to say that if you save a big piece of your income, you will end up with a large pile of money which will greatly improve your financial position? I mean, I thought this was the sort of obvious thing that everybody knows, like that the sun rises in the morning.
The hard part isn't knowing that you should save. The hard part is figuring out how to save, and figuring out where to put your savings. The article doesn't help at all in this respect.
If the article is merely saying that you can improve your financial situation if you save a lot of money, then it's pointless. If the article is giving more specific advice than that then saying that you can improve your financial situation by specifically getting a great job as an executive and putting your savings into investments that are so good they're effectively magic, which is also pointless.
You know, I don't think everyone knows this. Many people I know chose living with their parents and no job over paying rent but getting savings. Not to mention thinking no retirement account and a tax refund is better than a 401k and $0 back on their tax return.
I'm still working on explaining why a savings account with .75% interest is not a good place to keep money long-term.
I don't know that there is much in the way of good debt practically available to most people, but your example is bad. If your choices are:
1. Buy a car with cash up front.
2. Buy the same car with financing at 2% APR.
Then you should exercise option #2, and take the money you don't immediately spend and invest it aiming to get 4% return on investment (which should be achievable), then pay off your loan and realize a net 2% return.
But in general when people take out loans to buy cars they do so because it is a big purchase for them and human psychology may favor spending more if it comes out of an account in little chunks than all at once. So the "debt is okay" attitude is not good for those who do not know and cannot properly correct for their inherent biases towards spending more in small ways than in one large purchase.
Getting more than 2% annualized return isn't terribly difficult. Getting 10% annualized return like the OP says is super-hard.
There are lots of pretty safe investments that get you 3-4% real return. Now, are they zero risk? No. But I'm not suggesting that anyone bet their life savings on this, I'm talking about buying a car, something that people will generally do a bunch of times in their life and won't be spending their retirement on. If you can get 2% APR on your car purchase, and you invest the money you save, you should more than cover that APR the strong majority of all times.
I follow a slightly less aggressive, but similar strategy to the OP. I save about 30% of my income in most months. It leads to some fun financial benefits like a much higher interest rate on your savings and checking accounts and easy financing terms. Sometimes you can have your cake and eat it too. I saved up all the money for my car and they gladly gave me 0% financing (having almost no debt and a perfect credit record doesn't hurt either). I took that and kept the money in a stable investment.
Sometimes the trite saying of "Money makes money" is spot on. For most people though, you're right, that 2% deal would be a steal.
The problem with option 2 is that it doesn't take into account risk. You need a much higher and more secure place for a return to alleviate risk. Similar to what others said most people are taking out loans for things that they don't have the cash for. They aren't taking out the loan at a low interest rate so they can invest their cash somewhere else. But they are told, take the cheap money and invest elsewhere. They just forget to do that last part.
This may well be true, but the takeaway there is not "2% APR is bad debt," it's leading into the confluence of issues about how to get people to invest.
Some people call it FIRE (Financial Independence Retire Early). There are many people doing it and several resources online about this. I would start visiting some of the sites on this sidebar https://www.reddit.com/r/financialindependence
There's a really cool tool: www.firecalc.com that will let you calculate your likelihood of being able to retire based on all previous permutations of stock market returns.
I agree with the comments, his 10% are way overestimated. Best I've ever did in a year was a bit below 7% across all my assets (but then maybe I'm just not very good at managing my money). That said, saving enough money to have such a life by 48 is easy for most people here.
The easiest way to save is to keep spending like a student even when you start earning real money. That means avoiding the trap of wanting a bigger house, getting used to expensive food and restaurants, spending money in big brands and all the luxuries people start getting addicted as their salary go up. This goes with the second rule of thumb, never take on debt on depreciating assets. A mortgage for a house is fine, a loan for a TV is not.
It's much easier not changing your lifestyle as income increase than suddenly trying to cut expenses. Of course this advice doesn't really work for people who are paid a low salary but for software developers who earn a multiple of the median income, saving like this is easy.
In 2009, the S&P 500 returned 23%, where were you then?
It did similarly well in 2013. Are you picking stocks or something? Because you should settle down and just get some Index Funds from Vanguard.
The Median 15 year annualized return on the S&P 500 since inception is 12%, back out 2% inflation and you're right at 10% returns.
10% returns are not unreasonable. Sure it's not going to be a flat 10% every year like the article, but annualized returns of 10% over 15-20 years is doable for everyone.
If it's that doable why are there no funds that guarantee 8% every year? I would even buy a fund that gives me "only" 5% guaranteed. They can keep the other 5%.
Why would I guarantee something if I could avoid it? Investment returns are lumpy; some years you get +23%, other years you get -20% (probably 2008, for example), why would a fund manager offer a guarantee?
An average of 10% over a long period is doable; Berkshire Hathaway has averaged +15% for 40 years. Just because fund don't guarantee something doesn't mean it isn't doable.
Winning the lottery is doable too. So is making $20 million per year as golf pro.
When people give investment advice based on the 10% average return (which they do) then it should be a pretty safe thing and easy to achieve for everybody. Otherwise it will be bad advice for a lot of people.
> The Median 15 year annualized return on the S&P 500 since inception is 12%, back out 2% inflation and you're right at 10% returns.
lol, that's a ridiculous representation of things. A median 15 year return...
Imagine there's a fund with a 50 year history. Three 10 year periods had a return of 15%, and the other two periods had a return of -50%. Would you invest? Hell no. Yet they have an 10 year annualized median return of 15%. Who cares.
Beyond that, the 2% also isn't quite right.
In reality the return has been about 10% annualized since inception and the 100 year inflation rate has been 3.2%, but even that overstates some amazing returns a long time ago like in the 50s that won't return anytime soon.
If you want to talk about 15 year returns, talk about the most recent 15 years... Between 2000 and 2015 the return's have been 37% in total, or 2% per year, "back out 2% inflation" and I hope you enjoy your 0% returns.
Obviously we can cherry pick things all day like I just did, we can talk pre 2007 and post 2009, but 10% returns are definitely not reasonable for an average person for an average year, and that's what we're talking about here, that's what is reasonable, and that's not 10%. It's closer to 6% inflation adjusted I'd guess. And that's a huge difference, compounded over say 20 years on $100k it's a difference of $300k.
My assets are diversified, so not only index but also real estate, and I'm not based in the US. 2013 was actually a good year but I only did around 7% once we account for inflation.
If you don't know who David Rowe is - his work is amazing. He's the main force behind Codec2, one of the few opensource ultra-low bitrate speech codecs out there. The project hit ~700 bps recently! (https://github.com/freedv/codec2/blob/master/src/codec2.h - I think it was actually at 400 bps @ one point, but I guess it got scaled back)
Hmm.. it seems like most of his strategy depends on "middle class welfare," public healthcare, and public schools. I don't know much about Australian taxes, but I assume that with his low income and high savings he's paying less in taxes than he's taking from the public. And he's doing it because he likes the lifestyle, not because he fell on hard times. If I were an Australian taxpayer, I'd want to know why I should fund the early retirement of a tech exec.
Save half your money for 15 years and you can do this. Depending on your financial situation you can probably do it faster. It's simple (though not easy). Don't just imagine this as some impossible dream. Make it a real goal and go for it!
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[ 6.9 ms ] story [ 171 ms ] threadSo many greedy people feel attacked by this kind of thing, and react to the implicit allegation that they're being wasteful with condescension, muttering about the selfishness or oddness of not having kids, or then again about how much of a difference having to support a family makes and how unrealistic idealists are.
As I heard it said once, Lawful evil: "I did it for my family".
I think I found out why.
Is anybody else disturbed by the inclusion of his wife in his list of material posessions?
Sounds like the author was pointing out his own flaws in terms of what he considered success at that point in his life.
And its return since the 50s is 7% in real terms. And there were decades at a time (including the 2000-2010 period, where real return was -3.4%) that significantly underperformed that), so it's not even a reliable 7% a year, which you'd need for these calculations to work out.
For additional information: www.firecalc.com
On an inflation-adjusted basis, the S&P 500 has not grown at all for the past 15 years:
http://www.multpl.com/inflation-adjusted-s-p-500
The average rate of return for the past 50 years is pretty small. You can make almost any rate of return look reasonable if you cherry-pick the right timeframe, but the long-term average doesn't look good at all.
SO, while you were claiming the above poster was using bad numbers by using "the last 6 years," you are similarly using biased data by looking at the past 15 years because that's the eve of the dot com bust.
Edit: looks like without inflation, if this calculator is to be believed:
http://dqydj.net/sp-500-return-calculator/
The annualized return for the past 15 years with both dividends and inflation is under 2%.
I know that I'm cherry-picking by using a 15 year period. That was my entire point: that you can cherry-pick to find almost any rate of return.
However, that particular period is still pretty relevant. If your plan is to spend 10% of your savings per year, then a 15-year period of zero (or just small) returns will wipe you out. Even if it bounces back afterwards, you're still screwed.
http://www.moneychimp.com/features/market_cagr.htm
Year 1: 100% gain Year 2: 50% loss
The arithmetic average here is 50%, which the geometric average is 0%. The CAGR listed is going the correct metric to use but that is not 9% after inflation using the date range you provided. I get 7.42% for 1/1/95 - 12/31/14 after inflation and dividends are factored in. Not bad by any stretch of the imagination, though!
Because a) good luck finding an investment that'll give you 10% consistently for decades, and b) even with that magic risk-free return, his plan takes 20 years (or 22 if you somehow don't have $10K stashed up as a youngster) and then c) leaves you on the edge of your expenses (as he defines them) and reliant on that consistent 10% return continuing forever.
"Hey, if you find a magic investment, you can retire at 47 and then live in constant fear of penury!"
Using funds with dividends can smooth returns (although not always tax beneficially).
Already that's looking far less true if you look at the past decade or two, but it's still the received wisdom because it's what people enjoyed in the past.
The FTSE 100 hasn't peaked much higher than it peaked in 99/00, and in real terms still hasn't closed as high as it did back then.
Since you were careful to talk about nomimal return, this is then further reduced by the effects of inflation. A 5% nominal return might well be easy in an environment with a high inflation rate.
I'm not suggesting that people shouldn't invest, people clearly should invest as part of a mixed portfolio, and because cash returns are typically even slower, but the original article here is unrealistic as a goal.
Edit: Dividends help too of course, they aren't tracked into the index whereas it is possible to reinvest them back in if you don't take them as income.
I'm not denying that some people can get lucky with market timings and it works out well for them, and in fact there's the whole boomer generation it mostly worked out very well for, but it does no good to the next generation to account it all towards their actions and not account for any kind of good fortune in timing.
The other thing that the frugality and savings über alles crowd neglects to mention is that different people have different preferences (and that's okay!). Including preferences dealing with intertemporal discounting. It's one thing when you are trying to develop pithy messaging aimed at the general public and quite another to make un-nuanced arguments in forums that allow for them.
This is like "How to have an easy life":
1. Find a way to have plenty of money. 2. ...
This isn't talking about being wealthy - it's about considering alternatives and making good choices - if you can make more than $20k a year.
That's like saying win the lottery. Sure, it could work, but it's a lot of risk and does not scale.
In fact in TFA he says he has a kid.
fixed that for you :)
Kids are a choice - but even with kids one can still live frugally or prepared. For example, choosing to not have a child until you've accumulated enough savings to cover all of the extra surprise costs that can occur that most people don't plan for when having a child.
My father worked two jobs to barely make ends meet for 8 years because his financial planning revolved around a family plan that he didn't actually plan for. My family plans are actually planned and revolve around my financial plans. One problem I see people make is that their financial plans revolve around their family plans (or lack thereof).
No surprise child at 18 years of age. No poorly-planned "I think I'm ready but I'm not actually ready" child at 21-23 either. I've seen very, very, very few parents under the age of 25 that a) planned for their child and more importantly b) properly planned for their child.
Lack of planning - or having a poorly crafted plan is what is "risky" or "doesn't scale".
If something happens then finding a good job when your older and have not worked for a while is hard. So, IMO your better off trying to get a significantly larger nest egg than you think you need. That way compound interst works for you and you don't risk poverty while your old.
That $15k figure includes healthcare paid for and its very possible for a family to raise children on less than $30k combined. Choosing your partner wisely? That's important.
I don't understand your incredulity. People have lived and self-actualized on less than the $15k/yr equivalent forever - when did it become impossible? And why do you think so?
Dave Ramsey says, "Live like no one else, so you can live like no one else." He means, save aggressively and retire comfortably. I was already living like no one else: no car, no concerts, rarely seeing movies or eating out, no fancy clothes, avoiding doctors, less than $15 cell phone plan. And my expenses still exceeded my income. It is not so simple and easy for everyone to have savings.
Shouldn't be a problem for a large portion of HN's readership. Those who aren't in school or building a company are likely to have a tech job that pays beaucoup bucks.
you have to login to view this link, it's just filtering jobs by REMOTE + $125k+ = 255 startups.
Disclaimer: I'm a sysadmin/devops/infrastructure guy.
However, for most of the members of this forum saving half your after-tax income is perfectly reasonable. I would wager that 90% of the people on this forum makes at least 2x the median income for their location (unless you're based in SF).
So for most people on Hacker News, saving half your post-tax income means just means living an average lifestyle at worst.
A lot of people would just prefer to spend that money living in a nice place, and enjoying certain luxuries, but it can definitely be done on the kind of income a lot of HN readers are earning.
This link says current interest rates are 3.5%. [1]
[1] http://www.infochoice.com.au/banking/savings-account/high-in...
Long term US stock market returns seem to be something like 10% but those definitely have significant risks involved, even for index funds[2].
[2] http://observationsandnotes.blogspot.com/2009/03/average-ann...
That's the line where everything fell apart.
Folks with pretty conservative Vanguard funds seem to disagree:
http://institutional.vanguard.com/iam/pdf/total_return_chart...
How can you get consistent 10% return on your investment?
Assuming a more realistic 6% nominal return - 2% inflation gives us a more realistic 4% real return.
Running the numbers that way ends up with a measly $10,000 in interest after 20 years not a whopping $47,000.
The point is that eventually a quantitative difference becomes a qualitative difference. Few people can make a 10% annual return and many, many fewer still can make a 50% annual return. But if you just buy index funds, it's fairly straightforward for just about anyone to make a 4% annual (real) return.
Given the gigantic difference in how these curves grow over time, it's entirely fair to point this out.
It's like this popular meme:
http://i0.kym-cdn.com/photos/images/original/000/572/078/d6d...
Yes the beginning looks easy, yes I like where you got in the end, but you seem to have left out some important details on how you got there...
EDIT: I'm not sure why I'm getting downvoted here, he's talking about investing over a 20 year period - it's not unheard of to value an S&P index fund at 10% over that period!
The average annual inflation rate from 1970 is over 4%.
The annulaised return of the S&P 500 was 10.82% from 1970 to 1990. Which is grand but doesn't take into account inflation.
Adjust for inflation and the annualised return was 4.33%
So I am rolling to disbelieve that median 20 year return is 10%
It's also not unheard of for shares to double in value over a short period, but you don't know in advance which ones.
Quite simply, you are very unlikely to average at least 10% p.a. above inflation on investments over a long period.
I have a script I like to run that receives as input my retirement-contribution history - amounts and dates. It pretends I simply bought VFINX every time (using adjusted-close history to account for dividends) and tells me the resultant APY. As of today, over a 20-year history, that would be 8% nominal. Factor in inflation over that time and it's below 6%. And if you were to graph that out, probably 90% of those monthly data points are much lower.
People in general aren't going to have the discipline to stay in the S&P-500 since it is so volatile, but any other approach is in effect trying to "beat the market" which doesn't work. I didn't stay in S&P-500 and my personal APY is lower.
The fact of the matter is, people tend to have more money to invest when times are good (and market is high), and less money to invest when times are bad (and market is low). So they're by definition not going to be able to match "historical stock market averages". So any advice from these many articles and blog posts basically come down to "in investment performance, be an outlier." Well, sure.
Median was 4.1% real, then that means a real return at 90% or 95% confidence was even lower.
So in my opinion, the graph confirms the rule of thumb.
It also just so happened to quintuple his returns. Not exactly comparing apples to oranges when you have a 4% (realistic) v. 10% (unrealistic) return built into the model.
First, let's cover the tank in 10mm of it, which will give us all the protection we need. Freeing up that much room gives us more space to put a bigger gun on it. After vastly reducing the weight, even more so because we don't need to carry as much fuel, we don't need tracks, because an 8 wheel variant gives sufficient traction.
Oh, and since our new highly mobile and effective vehicle now costs a tenth as much, all the other expensive and slow vehicles taking on other roles in the army can be deprecated.
In fact, let's design a variant that carries fuel. In this way, instead of having 50 tanks advancing 100km per day, we can have 500 of our new vehicles advancing 500km per day, with the same firepower and effective armor, completely overwhelming any opposition. Why has nobody figured this out before?
OK, so, after we've taken the base assumption and followed the chain to its logical conclusion without error... we have nonsense. After realizing our mistake, and factoring in the real value for armor, our design and plans for reworking the army are absurd.
"Waiting longer" at 6% means 82 years to achieve the same returns as 50 years at 10%. But if we include 2% inflation as well, 6% takes 97 years to match 50 years at 10%. One of those is planning for your retirement if you're young... the other is planning for that of your grandchildren.
The 10 year US bond is often used as a risk free rate and it's about 2.2% right now if I remember correctly, and it's been as high as 3% in the past five years. And of course you can sell bonds too so it's not like they're illiquid, it's generally known as one of the most liquid markets on the planet.
But there's a bit more risk than than a 3 month bill of course which is also used as a risk free rate indicator quite a lot, and that's really low with inflation being so low right now.
Anyway I wouldn't call 4% incredible but it's definitely good and something many would be quite happy with.
Here's a nice little tool if you want to play with the numbers yourself over particular periods of time: http://www.moneychimp.com/features/market_cagr.htm
Granted, the 1950's had great returns, but the trend has been lower returns / year over time and both the 1970's and 2000's had negative real returns.
Over the 15-year period from 1966 to 1981, the real annualized rate of return in the stock market was -0.4% because of high inflation. You need to look at 20 to 30 year periods to get into the range of 7% real annualized returns across the 20th century. And there is the general issue with using the past as a statistical predictor of the future when the time window's length is a large fraction of the 20th century. Not to mention extreme outlier events whose level of impact isn't represented at all in the historical data.
A good book to read is Siegel's Stocks for the Long Run.
10% inflation adjusted I'd think is pretty ridiculous, either it's short-term, not inflation adjusted or he's a one in a million financial miracle worker, but you can't not have any of them. Actually the S&P500 return since inception is about 10%, maybe he's referencing it. But the real return of 1950 to 2010 or so has averaged about 7%. And that uses CPI numbers which may underestimate price increases, particularly in some areas. (e.g. you probably want a better ROI than the national average in hotspots like San Fran considering you need to keep up with things like housing price increases if you're investing in stocks and living off of the returns).
But even there you need a strong stomach as these are just long-term figures in what in reality is a volatile market. It's pretty trivial to talk about a 'the real returns of 12% in the 1980s offset the 0% real returns of the 1970s' and conclude 'oh the average return ended up pretty good around 6%', but it's another thing to actually live through the 1970s, experience ridiculous inflation and stock returns that can't keep up, and sticking with your 'live off of capital' strategy, when nobody promised the 1980s would be different and you have a kid who's going to college by then, a spouse etc.
1. They usually cover about 100 years. If you're starting out your career you've probably got about 40-50 years of saving followed by say 20 years of retirement, i.e. your training data is not much more than the period you're trying to predict.
2. That history is primarily over the period of world history that can be summed up as "cheap oil". Personally I wouldn't use it to predict any other time period.
3. If you look at the returns over time, they're pretty much generational. Some generations get fantastic returns from the stock market, while others at best are keeping up with inflation. If you started investing in say 2000 you probably know which category you're in.
I don't know what the schools are like in Adelaide, but in much of the U.S. the impetus for sending kids to private schools is not the quality of education per se, but the quality of the students. In Baltimore, where I live, you can either send your kids to private school, or send your kids to a school where some significant fraction of everyone is in a gang. Or you can move into one of the exorbitantly priced suburbs, increasing your carbon footprint and contributing to the exodus of middle class people that makes schools in the city such a disaster to begin with.
Real life lottery winners prove that winning the lottery is achievable. That doesn't make playing the lottery good financial advice.
The lottery example you provide is one in which even the winners can't give good advice on how to win.
you mean the fact he says he's doing it... which is worthless
The input in this case matters a lot.
I thought everybody already knew that it was possible in theory to retire early and spend a big chunk of your life not working. The hard part is figuring out how. The article's implicit advice of "get a highly paid job as an executive at a big company, and find investments which reliably return 10%" is useless for that.
That'd be awesome! We all would like that! But it's not something that ever really happens. Maybe if we discover strong AI or something.
What a wonderful country.
Most people can not quadruple their income, but it is technically possible to live on way, way less than most people think. The guy in the post claims his expenses are 40k/year for a 2.5 person household. That is 16k/year per person, which is low. But it can be lower than this. Check out Jacob from http://earlyretirementextreme.com/how-i-live-on-7000-per-yea..., he lives off 7k per year in California and retired in his early 30s.
I actually believe the 10% reference. But I also believe that he isn't being honest about where it is from. I smell a spendthrift trust or investment property that his is milking (ie taking rents but not paying the mortgage.)
If this sounds like a rant, it is. I'm spending all day doing RSA submissions. I do this to chase business/clients/pad my resume. It's yet more time spent chasing work rather than actually doing the work. Welcome to the gig economy.
You don't need much when you have a social safety net, freely given to anyone who needs it.
Other than perhaps older parents are dependents a choice for most to take as dependents? If so - a non-financially-productive dependent is like a second mortgage - but it was a chosen one.
I have no dependants and that was a choice by me. But I have had many clients for whom having children wasn't much of a choice. Even if it were, circumstances change and they cannot be cut away like an underwater mortgage.
Good choice for now - at least financially.
As to "not much of a choice" that may be - but it was a result of forseeable consequences that were known before.
Perhaps it would be easier to earn a decent return on investments if your government doesn't subsidize borrowing so much that you earn less than a dollar a year in interest on your bank deposits. Maybe Australia doesn't do that and its banks pay a decent interest rate as a result?
The whole point of a society is to NOT act as an individual.
Some would say the point of having a society is to have rules that allow us to peacefully co-exist and trade with other. Its not to allow some to take advantage of others.
In reality I bet it's about as easy no matter what country you live in and what tax rates or social programs you have access to. Simply live a somewhat frugal life, save lots of money, and let the magic of compounding work over a decade or two.
Rather than looking for excuses it's probably better to just get started.
I'm very frugal. My last car lasted 15 years.
Perhaps you'd be better off responding to what someone says instead of inventing imaginary motives.
Another key point is to stop thinking that there is good debt (i.e car loan at 2%) and to stop the 'keeping up with the Joneses' mentality. If you need a loan to buy something besides a house, you probably can't afford it. Being debt free can give you a mental and emotional peace that is hard to find elsewhere.
The hard part isn't knowing that you should save. The hard part is figuring out how to save, and figuring out where to put your savings. The article doesn't help at all in this respect.
If the article is merely saying that you can improve your financial situation if you save a lot of money, then it's pointless. If the article is giving more specific advice than that then saying that you can improve your financial situation by specifically getting a great job as an executive and putting your savings into investments that are so good they're effectively magic, which is also pointless.
I'm still working on explaining why a savings account with .75% interest is not a good place to keep money long-term.
1. Buy a car with cash up front.
2. Buy the same car with financing at 2% APR.
Then you should exercise option #2, and take the money you don't immediately spend and invest it aiming to get 4% return on investment (which should be achievable), then pay off your loan and realize a net 2% return.
But in general when people take out loans to buy cars they do so because it is a big purchase for them and human psychology may favor spending more if it comes out of an account in little chunks than all at once. So the "debt is okay" attitude is not good for those who do not know and cannot properly correct for their inherent biases towards spending more in small ways than in one large purchase.
There are lots of pretty safe investments that get you 3-4% real return. Now, are they zero risk? No. But I'm not suggesting that anyone bet their life savings on this, I'm talking about buying a car, something that people will generally do a bunch of times in their life and won't be spending their retirement on. If you can get 2% APR on your car purchase, and you invest the money you save, you should more than cover that APR the strong majority of all times.
Sometimes the trite saying of "Money makes money" is spot on. For most people though, you're right, that 2% deal would be a steal.
Essentially if you save 65% of your after tax income you can retire in ~11 years assuming you do not increase spending in retirement.
This model assumes a safe portfolio withdrawal rate of 4%.
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
The easiest way to save is to keep spending like a student even when you start earning real money. That means avoiding the trap of wanting a bigger house, getting used to expensive food and restaurants, spending money in big brands and all the luxuries people start getting addicted as their salary go up. This goes with the second rule of thumb, never take on debt on depreciating assets. A mortgage for a house is fine, a loan for a TV is not.
It's much easier not changing your lifestyle as income increase than suddenly trying to cut expenses. Of course this advice doesn't really work for people who are paid a low salary but for software developers who earn a multiple of the median income, saving like this is easy.
It did similarly well in 2013. Are you picking stocks or something? Because you should settle down and just get some Index Funds from Vanguard.
The Median 15 year annualized return on the S&P 500 since inception is 12%, back out 2% inflation and you're right at 10% returns.
10% returns are not unreasonable. Sure it's not going to be a flat 10% every year like the article, but annualized returns of 10% over 15-20 years is doable for everyone.
An average of 10% over a long period is doable; Berkshire Hathaway has averaged +15% for 40 years. Just because fund don't guarantee something doesn't mean it isn't doable.
When people give investment advice based on the 10% average return (which they do) then it should be a pretty safe thing and easy to achieve for everybody. Otherwise it will be bad advice for a lot of people.
lol, that's a ridiculous representation of things. A median 15 year return...
Imagine there's a fund with a 50 year history. Three 10 year periods had a return of 15%, and the other two periods had a return of -50%. Would you invest? Hell no. Yet they have an 10 year annualized median return of 15%. Who cares.
Beyond that, the 2% also isn't quite right.
In reality the return has been about 10% annualized since inception and the 100 year inflation rate has been 3.2%, but even that overstates some amazing returns a long time ago like in the 50s that won't return anytime soon.
If you want to talk about 15 year returns, talk about the most recent 15 years... Between 2000 and 2015 the return's have been 37% in total, or 2% per year, "back out 2% inflation" and I hope you enjoy your 0% returns.
Obviously we can cherry pick things all day like I just did, we can talk pre 2007 and post 2009, but 10% returns are definitely not reasonable for an average person for an average year, and that's what we're talking about here, that's what is reasonable, and that's not 10%. It's closer to 6% inflation adjusted I'd guess. And that's a huge difference, compounded over say 20 years on $100k it's a difference of $300k.
Go read http://mrmoneymustache.com