# Compound Growth from 1978 to today.

#### tindel

Joined Sep 16, 2012
724
This topic has evolved from another topic that was discussing income in 1968, savings, and compound growth.

For the record I do respect @#12... he invested hardily in real estate and it sounds like it has done well for him. I just don't want to give some young person reading this forum the idea that compound interest isn't worth the money... it is... oh baby, it is. It takes 5 years to start to see things happen... keep fighting the good fight. It will most likely blow up - baring catostrophic economic breakdown (i.e. the US ceases to exist).

No big deal. If I had received 5%, compounded annually, that $1 would be worth$12 now.
The whole point of the bank account was an experiment called, "reality testing".
Teacher said, so I checked.
Teacher was wrong.
I didn't put my money in a savings account after that.
Can you tell us about jobs that allowed someone to squirrel away $100k in 1968? Just for fun, I went and played with the numbers and looked at 3 scenarios. All with a 10% savings rate, 4% growth (this negates 3.4% average inflation, and 7.4% market growth to keep all numbers in 1978 dollars), and an 8% company match. Pensions were usually used in the mid 20th century to retain talent and to provide the employee with a total retirement package without having to save for retirement themselves. Today companies usually match some portion of an employees income. For engineers in 2016, this is usually 8%, but not always... and could be 0%. It is entirely up to the employer. I got all of my wages values from a published Department of Labor document here. I strictly used the mean wage for an engineer. Just an average Joe Engineer. Scenario 1: In 1968 a budding engineer made$9024. Imagine he was stifled and wasn't given a raise or promotion until 1971, when he was given a promotion to Engineer II, but was still only paid 1968 wages. Joe Engineer now makes $9678! The same thing happens again in 1975 and he makes$10968 a year. Now imagine he only saves until 1977 and he quits contributing. His investments are now 0% as of 1978. He continues to work until 2007 when he finally retires with 40 years of service (good on ya Joe!). He's saved for 10 years and has $21.2k in stock investments. If he didn't contribute another dime it would be worth approximately$68.7k when he retires in 2007 (@GopherT getting close to $100k invested in 1968 dollars!). All of this from his initial$18k investment. Of course this is only in 1968 dollars because we only assumed 4% growth and the stock market averages more than that. This online calculator shows that if this money was invested all at once in 1968 it would be worth $471k in 2016 dollars. Scenario 2: Imagine everything in Scenario 1 happened, but instead of stopping his savings he continued to save 10% of his income. He got a promotion to Engineer IV in 1980 and Engineer V in 1990. Each netting him a kingly sum of$13,092 and $15,228, respectively. He continued to work until he had 40 years of service. He saved$95k and his account was $208k when he retired (@GopherT two times more invested than$100k in 1968 dollars!). Over $100k in free money. Now remember... this is STILL all 1968 dollars! Using the same online calculator that 1968 dollars would be worth nearly$1.4M in 2016.

Okay - shut up tindel... You can't use all of that money and invest it at one time in 1968... Well, yes we can because we are talking 1968 dollars here and then calculating for inflation in that time. So $1.4M is accurate... However, let's do a sanity check... sooo.... on to scenario 3. Scenario 3: Historically the average annual stock market return is 7.4%. Income growth has been about 6% if the level V engineer makes$100k per year in todays dollars (pretty low if you ask me for an engineer with 50 years experience). So with that in mind, and adjusting these two figures. If Joe Engineer retired in 2007, he would have $823k and that would be worth approximately$1.57M in 2016 not too far off of the $1.4M figure from scenario 2. THIS is the power of compound interest. If Joe Engineer did do this in 1968 he'd be set for life... literally. You think you could live off of 4% of$1.4M today with a paid off house? I could. And at 4% of your money would never run out because your not dipping into the inflation portion of your profits. It's an incredibly powerful concept. And this is only a 10% savings rate with a 8% company match. Imagine if you saved 30, 40, or even 50% of your take home! You can if you live below your means! 30% is pretty attainable if you get a 15 year mortgage and are paying a good portion of your payment in premium. What you'll find at that 30% saving rate with 20% into the principal on the mortgage and 10% in stock is a good balance between real estate and stock diversity, and chances are that you'll have all the money you need in your portfolio to retire... in 15 years.

On a personal level I'm starting to see this happen. I've only started getting serious about this at age 30. I'm 34 now. I'm well on my way to being retired LONG before I hit 50. I have little stress with my house payments and repairs. I just signed a contract on a house today that will get my saving rate to around 40% [I need to go calculate that!]. Walking distance to work, school, and the city rec center. Biking distance to all major necesities - home improvement, clothes, food, etc. The house will be paid off when I'm about 40 - assuming no major windfalls or downfalls(?). I love engineering so I will stay in it as long as I can - but then it will truly be for the fun of it.

I'm not trying to brag... I'm trying to encourage the young people that peruse here occasionally to live life better, live life differently.

Attached is my spreadsheet I used to calculate all of this in pdf form... PM me if you'd like the xlsx file... apparently it's not allowed here.

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#### ronv

Joined Nov 12, 2008
3,770
This topic has evolved from another topic that was discussing income in 1968, savings, and compound growth.

For the record I do respect @#12... he invested hardily in real estate and it sounds like it has done well for him. I just don't want to give some young person reading this forum the idea that compound interest isn't worth the money... it is... oh baby, it is. It takes 5 years to start to see things happen... keep fighting the good fight. It will most likely blow up - baring catostrophic economic breakdown (i.e. the US ceases to exist).

Just for fun, I went and played with the numbers and looked at 3 scenarios. All with a 10% savings rate, 4% growth (this negates 3.4% average inflation, and 7.4% market growth to keep all numbers in 1978 dollars), and an 8% company match. Pensions were usually used in the mid 20th century to retain talent and to provide the employee with a total retirement package without having to save for retirement themselves. Today companies usually match some portion of an employees income. For engineers in 2016, this is usually 8%, but not always... and could be 0%. It is entirely up to the employer.

I got all of my wages values from a published Department of Labor document here. I strictly used the mean wage for an engineer. Just an average Joe Engineer.

Scenario 1:
In 1968 a budding engineer made $9024. Imagine he was stifled and wasn't given a raise or promotion until 1971, when he was given a promotion to Engineer II, but was still only paid 1968 wages. Joe Engineer now makes$9678! The same thing happens again in 1975 and he makes $10968 a year. Now imagine he only saves until 1977 and he quits contributing. His investments are now 0% as of 1978. He continues to work until 2007 when he finally retires with 40 years of service (good on ya Joe!). He's saved for 10 years and has$21.2k in stock investments. If he didn't contribute another dime it would be worth approximately $68.7k when he retires in 2007 (@GopherT getting close to$100k invested in 1968 dollars!). All of this from his initial $18k investment. Of course this is only in 1968 dollars because we only assumed 4% growth and the stock market averages more than that. This online calculator shows that if this money was invested all at once in 1968 it would be worth$471k in 2016 dollars.

Scenario 2:
Imagine everything in Scenario 1 happened, but instead of stopping his savings he continued to save 10% of his income. He got a promotion to Engineer IV in 1980 and Engineer V in 1990. Each netting him a kingly sum of $13,092 and$15,228, respectively. He continued to work until he had 40 years of service. He saved $95k and his account was$208k when he retired (@GopherT two times more invested than $100k in 1968 dollars!). Over$100k in free money. Now remember... this is STILL all 1968 dollars! Using the same online calculator that 1968 dollars would be worth nearly $1.4M in 2016. Okay - shut up tindel... You can't use all of that money and invest it at one time in 1968... Well, yes we can because we are talking 1968 dollars here and then calculating for inflation in that time. So$1.4M is accurate... However, let's do a sanity check... sooo.... on to scenario 3.

Scenario 3:
Historically the average annual stock market return is 7.4%. Income growth has been about 6% if the level V engineer makes $100k per year in todays dollars (pretty low if you ask me for an engineer with 50 years experience). So with that in mind, and adjusting these two figures. If Joe Engineer retired in 2007, he would have$823k and that would be worth approximately $1.57M in 2016 not too far off of the$1.4M figure from scenario 2.

THIS is the power of compound interest. If Joe Engineer did do this in 1968 he'd be set for life... literally. You think you could live off of 4% of \$1.4M today with a paid off house? I could. And at 4% of your money would never run out because your not dipping into the inflation portion of your profits. It's an incredibly powerful concept. And this is only a 10% savings rate with a 8% company match. Imagine if you saved 30, 40, or even 50% of your take home! You can if you live below your means! 30% is pretty attainable if you get a 15 year mortgage and are paying a good portion of your payment in premium. What you'll find at that 30% saving rate with 20% into the principal on the mortgage and 10% in stock is a good balance between real estate and stock diversity, and chances are that you'll have all the money you need in your portfolio to retire... in 15 years.

On a personal level I'm starting to see this happen. I've only started getting serious about this at age 30. I'm 34 now. I'm well on my way to being retired LONG before I hit 50. I have little stress with my house payments and repairs. I just signed a contract on a house today that will get my saving rate to around 40% [I need to go calculate that!]. Walking distance to work, school, and the city rec center. Biking distance to all major necesities - home improvement, clothes, food, etc. The house will be paid off when I'm about 40 - assuming no major windfalls or downfalls(?). I love engineering so I will stay in it as long as I can - but then it will truly be for the fun of it.

I'm not trying to brag... I'm trying to encourage the young people that peruse here occasionally to live life better, live life differently.

Attached is my spreadsheet I used to calculate all of this in pdf form... PM me if you'd like the xlsx file... apparently it's not allowed here.
It's worked for my stepson. I started late, but it is amazing. You just need to be ready to coast thru the bad times.

#### MrChips

Joined Oct 2, 2009
21,647
You can use the simple Rule of 72.

Divide 72 with the interest rate and this will give you an approximate number of years for your investment to double.

For example, if the interest rate is 6%, your investment will double in 12 years.
Note that this is an approximation but good enough for rates under 10%.

#### tindel

Joined Sep 16, 2012
724

Also - this graph changed my life. It's a graph from a book called 'Your Money or Your Life'. Read it... most libraries have it or can get a hold of it for you for free. The crossover point is where you are Financially Independent (FI) - you no longer need to earn income... ever.

#### dannyf

Joined Sep 13, 2015
2,197
assuming no major windfalls or downfalls(?).
That's basically it: buying a house (or any asset) makes sense if you assume away the asset risk. In your assumed world, no one will rent, everyone will own.

Reality is quite different from that, fortunately. people have different perceptions of risks, different tolerance of risks, and different ability to take on and take advantage of risks.

Your story may turn out just fine 10 years from now, or it may turn out terribly as well. The fact that it turns out fine doesn't mean your risk taking was right; and the fact that it turns out terribly doesn't mean that your risk taking was wrong.

It is just that your decision to take that risk is personal and dependent on your assessment of risks at that point.