Ten years can change everything – the millennium revolution

FIRECracker is an early retiree who travels the world. She once lived in one of Canada’s most expensive cities, but instead of falling into debt, she refused to own a home. She ended up with a seven-figure investment portfolio that allowed her and her husband to retire at age 31 and travel the world. Their stories have been featured on CBC, The Huffington Post, CNBC, BNN, Business Insider and Yahoo Finance. To date, it is the most shared story in CBC history, with their viral video on CBC’s On the Money racking up 4.5 million views.

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We always overestimate the changes that will happen in the next two years and underestimate the changes that will happen in the next ten years.

bill gates

Now over a decade into retirement, and having spent nine years becoming financially independent, we know that playing the game for decades is the key to success. This also applies to things outside of investing and retirement, such as marriage, passion projects, raising children, friendships, etc. Society constantly tries to trick us into chasing that quick dopamine hit—think social media, speculative investing, online gambling—but the truth is, success only comes to those who wait.

When you start investing, the first year won’t change your life. Probably not in the second year either. But what about the tenth year? Completely different story.

It just snowballed and the initial effort was huge. But once it gets big enough, it takes on a life of its own. Like a snowball, your portfolio will gain momentum and grow on its own without any effort on your part.

The problem is how our brains are wired. We tend to think about things linearly rather than exponentially. After investing for just a year or two, we want to see immediate results, not double or triple our net worth in ten years. We don’t understand how a penny that doubles every day for 30 days can become $5.3 million.

But if you can understand this concept, you can take control of your finances.

To illustrate this, here is an example:

Assume you have a net worth of $0 and contribute $10,000 per year. How would your net worth grow based on a conservative long-term average return of 6%.

To demonstrate the power of compound interest, I highlighted how often this fictional character’s net worth increased by $100,000. So the yellow rows are where their portfolio exceeds $100,000, $200,000, $300,000, etc.

The first $100,000 is extremely slow, taking 8 years to arrive. However, it only takes 6 years to reach $200,000. After that, it only takes 4 years to reach the $300,000 level, then just 3 years to reach $400,000, and so on. This is the snowball effect. Once your portfolio gains momentum, it will grow faster than you can make money.

Here’s another way of looking at it.

Here’s a chart that shows how much our investors have put into their portfolios from their own cash, and how much their investment returns have grown over time.

Initially, all portfolio additions come from cash because it is an empty account. Then over the next year, that initial $10,000 generates a little bit of money. It’s not a lot, but it’s still something. The investment returns will increase the following year, but still pale in comparison to cash savings.

Until around year 13. At that point, the returns on the portfolio investments are as great as the cash our investors add to the pile. At this point, their money is working just as hard as they are. After that, the investment actually generated more money than our investors saved each year. At this point, their money is working harder than them.

This is the magic of compound interest.

This effect becomes even more pronounced when we plot how much of their total portfolio is made up of cash contributions versus investment income.

Initially, most of the portfolio was made up of their own cash. But over time, investment income will catch up and then exceed the portion that comes from savings. Without this compounding effect, the savings is really just a straight line, which you can see if you draw a line along the top of the blue bar in the chart. But through the compounding effect, we get this hockey stick shape, which is the key to wealth.

Once you understand it, the power of compound interest is nothing short of magical. It doesn’t take luck or a genius IQ, over time you will suddenly find that your investments are making more money than you can contribute. Your money really works harder than you.

A reader recently wrote to us and was amazed that their net worth had grown exponentially over time.

I call them “GraphNerd” and you’ll soon understand why. Because not only is this reader crazy enough to binge every article we write on this blog, they also read the entire boring appendix of our book! Then, because they clearly have a huge obsession with spreadsheets, they plotted their net worth and compared it to ours:

Their:

Our:

Surprisingly, they noticed the same effects as us. Progress was slow for the first 5 years, but then the portfolio reached a critical point and suddenly took off!

That’s why it took us 5 years to reach the first 500,000, but only 3 years to add the other 500,000.

For our readers, the price at 5 years was only $200,000, but another 5 years later, that number quadrupled to $800,000! In other words, it took five years to grow the first $200,000, but only 2.5 years to grow the second $200,000!

GraphNerd’s take on this phenomenon: “I knew my portfolio was going well over the past few years, but I didn’t realize how steep the line was for me since 2023 (it would have been nice if it lasted another year or two!). I had about 5 years of modest growth (2016 to 2020), so the line graph turning 45 degrees was a stark contrast (like yours relatively quickly).”

Time will pass no matter what

Back in 2017, I wrote this article about how we retire in our 30s, and through years of perseverance, I wrote this blog and published a book. We didn’t get frustrated seeing how long each effort took. Now that we know “time will pass anyway,” we might as well keep trying.

Now, 8 years later, the theme of the article is still: “Time will pass no matter what.”

Readers like this one and the ones I mentioned above started investing before that article was written. Now, ten years later, one person is a millionaire and the other has reached 80%. They knew they couldn’t give up on slow results in year two because they were playing the long game.

And you? Where are you on your FIRE journey? If you haven’t started yet, why not?

I hope you’ll come back to this post in 10 years and tell me, “Look how much I’ve accomplished since I wrote this!”

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