3D·

From a deposit of 100,000 euros, it practically works by itself... Is that right? 🤔

I bet you've heard this rule many times before. In any case, I don't know any "finance influencer" who doesn't pray this rule up and down and it goes down well with their audience... why? Because it seems achievable. 100k in the portfolio is within the imagination, while portfolio sizes beyond millions seem too far-fetched for many!

👉🏻 In order to convince people of the importance of the rule, all kinds of statistics are brought out. First and foremost, the time until the "next 100k" as proof of the compound interest effect, which makes the work from then on virtually by itself.

And for those who are still not completely convinced, the quote from Charlie Munger (Warren Buffett's No. 2) is thrown around: "Accumulating the first 100,000 is the most difficult and the most important part!". And who wants to contradict one of the most successful investors of all time? 😅

But let's take a closer look at the details:

Let's assume we are able to save 10,000 euros per year...

Deposit value start: -> end -> of which saved: -> in years

0 -> 100k -> approx. 70k saved -> 7.44 years

100k -> 200k -> approx. 120k saved -> 12.37 (+4.93) years

200k -> 300k -> approx. 160k saved -> 16.06 (+3.69) years

300k -> 400k -> approx. 190k saved -> 19.01 (+2.95) years

400k -> 500k -> approx. 215k saved -> 21.47 (+2.47) years

...

It's true, after the first 100k, the investment income just exceeds the deposits under the given assumptions.

But there are two things to consider...

➡️ 0 taxes: Here it is assumed that you will never receive dividends and / or realize capital gains and therefore have to pay tax. All profits are reinvested. In reality, this will apply to very few people.

➡️ Real return: In addition, 100k in 7 years is not worth 100k today. The real return (adjusted for inflation by approx. 3% p.a.) on the MSCI World is closer to 5%, at least since 1970. This chart assumes a very optimistic case. If we take the 5% as a basis, we will only reach the first 100k after well over 8 years.

In addition to the obvious shortcomings of this glorified rule, there are also very practical disadvantages over such a long period of time:

If you start at 30, in theory you reach your first half million at around early 50-55. For most people, there is a gap in between:

👉🏻 Starting a family

👉🏻 Buying / financing a property

👉🏻 Strokes of fate, caring for parents in old age, etc.

This means that very few people will be able to keep up this kind of saving and will have to start saving earlier. This means that all the magic is gone.

And what about Charlie Munger's statement? Well, he made the statement in the 1960s. 100k back then is equivalent to around 1 million euros today. 💵

And that's exactly the point. The 100k shouldn't be an end in itself, it should have a noticeable positive effect on your everyday life. That's what they had in the 1960s ... Today, you need at least 1 million euros, if not more.

However, this message is no longer so sexy, because for many people this is unattainable, especially in their early years (Buffett had his first million dollars at around 30!!!). -> that corresponds to at least 4-5 million euros today). But this message doesn't generate likes and clicks... 😉

What is your opinion on this?

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31 Comentarios

Toni M.@INOT

100k or not, but don't forget to live a little too

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Part_Time_Joe@Part_Time_Joe

@INOT Probably the most important tip of all here! I agree 100% 👍🏼

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Chris@Multibagger

I reach the 100k without deposits and after taxes within 10 years. And of course the higher the starting capital, the easier it is because I have many more opportunities to take advantage of interesting investment opportunities.
If I hadn't started with 3k 2.5 years ago, but with 30k, I would already have 180k in purely mathematical terms.

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Part_Time_Joe@Part_Time_Joe

@Multibagger I don't think anyone disputes that either. However, 100k is no longer the "magic limit" of the past, as the financial influencers suggest. This limit is now (if you refer to Buffett / Charlie Munger) beyond one million.

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Chris@Multibagger

@Part_Time_Joe You are definitely right.

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Eselai@DonkeyInvestor

Super contribution. I wanted to write something similar, but didn't have the time. 2 comments:
1) 10k a year savings rate is already very high
2) What inflation did you calculate with to go from 100k in the 60s to 1,000k today (hypothetical question, I can work it out myself)? I don't think the figures quite fit here

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Part_Time_Joe@Part_Time_Joe

@DonkeyInvestor Thank you! Yes, the 10 k is pretty high. But I just left it at that for the sake of it...

Based on the year 1960, that would be 3.67% annual inflation. That would correspond to around 1.02 million and roughly 980k euros. But I've rounded generously... 😉

I also believe that true inflation is even higher.

Thanks for the coins 👍🏼😉

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Invesdos@Invesdos

It's a bit of a read though... not worth it.

It doesn't have to be a million, 100K/200k is still something impossible for a large part of society today and still gives a certain amount of security.

It should be clear that you won't make any big leaps with it, but it's better to have 100K on the side than to have squandered it all along the way

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Part_Time_Joe@Part_Time_Joe

@Invesdos You are absolutely right. 100k / 200k is still a lot of money and having it is definitely better than not having it, especially because of the psychological effect.

However, I was primarily concerned with the unrealistic expectations that are also fueled by many influencers. To exaggerate, every influencer says that you just have to break 100k and then... 🚀

There is that point, yes. But unfortunately it's not 100k (by today's standards) and is simply not achievable for the vast majority of people under normal circumstances.

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user5ca946a11b6a4278@user5ca946a11b6a4278

So I don't actually pay any taxes thanks to bitcoin 😛

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Part_Time_Joe@Part_Time_Joe

@user5ca946a11b6a4278 and the historical return is also likely to be slightly higher. 😉

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“Lloyd_is_water!“@Ash

@user5ca946a11b6a4278 I've been wondering for some time, for Germany 🇩🇪, when Lars and Friedrich will turn a blind eye to this and abolish the tax exemption after one year...

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Part_Time_Joe@Part_Time_Joe

@Ash To be honest, I'm also a little surprised. But it can't be long now. I have the feeling that money is urgently needed 😂

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Aktien365@Aktien365

That's why I simply pay in €2000 every month via a savings plan, so my portfolio grows by €100k at least every 4 years.

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Sithz@Sithz

I made 120k from 50k this year, so it should be easier to make 200k from 120k now 😃

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Part_Time_Joe@Part_Time_Joe

@Sithz I'll keep my fingers crossed. If you can keep this up for a few years with this return, you should break the 1 million mark in 3 years 😉

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Mangan@Mangan

Many thanks for the contribution! I realized yesterday that it only took me 6 months to go from 200k to 300k. That was unexpectedly fast and the graph matches my perception.

This efficiency makes it possible for me to reduce my working hours a bit to spend more time with the family. The time window is short...

In hindsight, I wish I had started investing much earlier instead of leaving the money lying around in my account for years (I know, stupid 😅) Unfortunately, nobody explains that to you. But it's very motivating and the community here is really good!

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Part_Time_Joe@Part_Time_Joe

@Mangan Congratulations on that! 100k in a year based on 200k is pretty good! 👍🏼

Yeah, hindsight is always smarter. As the saying goes. The best time to invest was yesterday, the second best is today ... With that in mind, good luck!

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TradingHase@TradingHase

You can certainly invest and grow more with more available capital.
Everyone must weigh up their willingness to take risks for themselves. In principle, you can achieve more profit or accept more loss with more capital.
If you stay on the ball and remain sensible, you can build up good growth.

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Masterclass@YoJazz

Good contribution, thanks for that. I had already made similar considerations for myself. This is precisely why it makes sense to start investing as early as possible to make the reaction horizon as long as possible. Indeed, life circumstances always play a major role. The important thing is to set yourself an achievable goal and pursue it with determination.

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Paketknecht@Paketknecht

For me, a custody account works on its own if the return (at 7% p.a.) exceeds the annual deposit by at least a factor of 2 and it is a sum that has a noticeable impact on my life, e.g. if the return at 7% p.a. corresponds to an annual gross salary.

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Part_Time_Joe@Part_Time_Joe

@Paketknecht I take a similar view. However, I would add that the return that can be paid out must correspond to my annual gross income. At least one value must remain in the portfolio that covers inflation so that my portfolio grows at least in line with inflation. Ideally, a sum x should be added to cushion the impact of bad years.

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Paketknecht@Paketknecht

@Part_Time_Joe I meant the annual gross amount more as a parameter, i.e. from the point where my securities account generates such a return, I would consider whether it makes sense to continue to bring in new capital or simply let the thing run without further deposits, because the return and compound interest already do most of the "work" in asset accumulation from that point on. Withdrawal is another matter.

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Patrick@Paddy_ro

Right on time after the publication of your article, my portfolio rose to 100k for the first time, if that's not a sign 😆. But it took me 3 years with about 60k invested

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Part_Time_Joe@Part_Time_Joe

@Paddy_ro congrats on reaching the milestone! Stay tuned and the next 200k will surely come! 👍🏼😊

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Dom D.@Starter0922

Your post is as demotivating as the current weather. I'm still 7k away from my first 100k. Reaching 100k is not easy and the narratives you mentioned motivated me a lot. You're demystifying my world 🤧. Not really, but the idea that things will go faster once I reach 100k keeps me going.

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Part_Time_Joe@Part_Time_Joe

@Starter0922 I hope it doesn't demotivate you! The bigger the deposit, the faster it goes... so keep at it! 👍🏼😉

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Matej@axisovo

Some practical advice to get to the first 1M:
1. Focus on maximizing saving rate (cut on housing, live with flatmates, automate expenses & investing right after pay days)
2. Focus on maximizing income (picking companies with strong teams, vision and carrier paths or building your own, rather then chasing higher pay checks, compounding your salary annualy by x% is more important then starting pay)
3. Keep small cash allocation on the side (5 - 10% depending on your expenses and size of your portfolio)
4. build portfolio for higher then 7% yield, but don't go crazy. 7% just does not cut it with all the debasement that is going on. BTC is a good pick.
5. Diversify (no more then X% in one position and no more then Y positions - up to you to fill in the variables based on what you are comfortable, important is to have rules and diversify by asset class, market)

and most important of all:
choose your partner wisely :) You can thrown 1 to 5 out of the window if she spends all your money, or takes half of everything with divorce.

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Nom@user28461

I can see that this is the case, I don't need to do the math 😆

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ashish J.@JaqenH

A 100k usd in us is very very easy to achieve compare to 100k in Germany. Especially if you work in tech , a similar salary in US is easy 2 to 2.5x

I still think a 100k is a decent enough goal for an European.
Not to mention a slightly stronger eur than a $$.

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