6 min read
Here are 10 financial charts along with their insights.
1. A high savings rate can offset poor investment returns. This chart shows how many times your annual expenses you could save in 10 years based off three different annual investment returns. Notice how you could save up 10 times your annual expenses with a 50% savings rate even with 0% investment returns.
Original Post: Can A High Savings Rate Offset Poor Investment Returns?
2. Historical stock market returns can’t predict future returns. The chart below shows every possible “previous year – following year” combination of S&P 500 annual returns since 1928.
The x-axis shows the S&P 500 return in year 1 and the y-axis shows the return in year 2. There’s no clear pattern here, which means the S&P 500 return in the previous year doesn’t help us predict the S&P 500 return of the following year at all.
Original Post: Can Historical Stock Market Returns Predict Future Returns?
3. We underestimate the power of compound interest towards the tail end. The chart below shows how long it takes to reach different $100k net worth milestones by saving and investing $10,000 each year at a 7% annual rate of return. Notice how it takes less time to go from $600k to $1 million than it does to save the first $100k.
4. A little active work can produce as much income as a massive 3% dividend-generating portfolio. The chart below shows that earning $3,000 per year through active work can generate the same income as a 3%-yielding dividend portfolio worth $100k.
Note: The caveat here is that you could sell off some of your portfolio to generate $3,000 without any active work, which is the obvious benefit of the portfolio.
5. Early on in your financial journey, most of your net worth growth will come from savings. As time goes on, more and more of that growth will come from investment returns.
Original Post: Here’s How Much Investment Returns Matter Based on Net Worth
6. Given enough time, compound interest will turn $100k into a massive sum. The graph below shows how $100k has grown historically over every 30-year period since 1928, adjusted for inflation. During the worst period (1965-1994), $100k turned into $361k after 30 years. During the best 30 year period (1932-1961), it grew to an incredible $1.7 million.
7. Increasing how much you save each year is a wonderful formula for generating wealth in the long-term. The chart below shows how you could have accumulated $447k from 2000-2017 by saving $10k each year. If you had increased your savings by just 5% each year you could have instead accumulated $657k.
8. The more you save each year, the less investment returns influence how long it takes for you to save $1 million. In the chart below, the green circles represent the shortest number of years it took to save $1 million, the yellow circles represent the average number of years, and the red circles represent the longest number of years it took. Each row represents different annual savings amounts.
Original Post: Here’s How Long it Has Historically Taken to Save $1 Million
9. Investment returns don’t influence small portfolios very much. The chart below shows the actual dollar returns of the S&P 500 during the best and worst years ever (since 1950) based on portfolio size. Notice how small portfolios only experience minor gains and losses during both the best and worst years. If you have a small portfolio, you shouldn’t stress out about investment returns.
10. The higher your savings rate, the faster you can achieve financial independence (or whatever your financial goal may be). The grid below shows how long it takes to save up 25 times your annual expenses based on annual income and spending. It assumes you start with a net worth of $0 and earn 5% investment returns on your savings each year.
Original Post: The Financial Independence Grid
All of the charts shown here were made in Microsoft Excel. Download my free Tiny Guide to Better Charts in Excel to learn how to make some of these visuals yourself.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free, has no trading or maintenance fees, and even allows him to set up automated target-allocated investments.
His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.
His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.
His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.