Compound Returns

Discussion in 'Investor Psychology' started by Deltaberry, 28th May, 2015.

  1. Deltaberry

    Deltaberry Member

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    I was running some numbers today and just realised my wealth has had an average compound return of around 125% since 2008 from when I was a graduate. This includes rent, estimate capital growth, salary, shares etc, you name it.

    Which got me thinking about a few things about accumulating wealth.
    1. Starting early is important
    2. You really need a return of 50%+ growth in your 20s and early 30s years to get ahead
    3. Starting capital is important but not THAT important. If you had $100k, 125% compound returns over 8 years is around $6.5m If you had $50k, it's $3.5m. Going from $3.5m to $6.5m is not that hard, so whether you start with $50k or $100k is not that big a deal. I say this because a lot of people don't for example take the leap of faith because they feel they don't have enough money.

    It also got me thinking. If you get to a point in life where you have a lot of equity and whatever you're doing (your job, business etc) is only having a minimal increase on your wealth, you may want to reconsider what to do in life if you still want to grow your wealth. Eg if you have $2m equity, do you really want to be working in a job making $50k pa? That's only 2.5% increase in your wealth. To get serious about wealth accumulating, you really should be growing your $2m by maybe $200k (10%) if not $400k (20%) per annum.

    It's the art of compound returns.
     
  2. Biz

    Biz $17 DOLLAS YO!

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    That's where I am at now but my equity is a little lower and income higher than the figures you quoted.

    Can't figure out what the F to do with myself though.
     
  3. Rixter

    Rixter $uper Investor (Retired)

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    Sounds like a possible candidate for LOEquity mate. :)
     
  4. D.T.

    D.T. Property Lookerafterer

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    Except he doesn't want to erode his capital
     
  5. Rixter

    Rixter $uper Investor (Retired)

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    Slumlording is definitely out for him then.
     
  6. Deltaberry

    Deltaberry Member

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    LOE would need a fair bit would've thought.

    Not to mention it might not be there if the market dives :D
     
  7. Rixter

    Rixter $uper Investor (Retired)

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    Isnt it structured for CG on an asset base of $3.5M with a 42%LVR ?
     
  8. Deltaberry

    Deltaberry Member

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    You mean Biz? Not sure

    But wouldn't you have to have CG every year to live? What if there's no CG?
     
  9. Rixter

    Rixter $uper Investor (Retired)

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    You've already attained the CG if you have a net position of $2m equity on a 42% LVR.
     
  10. MTR

    MTR Bling Bling

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    Yes you have a choice, But if you want to still play monopoly and fund deals you need to service loans. The investors who retire seem to contine playing ie start up a business etc ..to service debt and keep growing the business. Of course you could always give it a big miss and just play golf 5 days a week

    And then you have those with children, the babies and you want to give them a leg up, so looks like most successful property investors never retire, but if it's for love then power on
     
  11. Deltaberry

    Deltaberry Member

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    True but the point was really if you're not growing by 20% or maybe 40% pa you'll fall behind quickly.

    Perhaps it didn't come across properly. The post wasn't about me but more the mindset behind say Berkshire Hathaway's compound returns.
     
  12. Rixter

    Rixter $uper Investor (Retired)

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    It really comes down to the individual/s, who are controlling the asset base, are looking to do or achieve as to how hard they want to drive the compounding machine. But you are correct, the power of compounding is truly remarkable.
     
  13. redwing

    redwing Progress Not Perfection

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    Hi Deltaberry

    Would you look at the Compound annual growth rate (CAGR) rather than just the compound returns?
     
  14. Deltaberry

    Deltaberry Member

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    Yea I was looking at CAGR specifically.