I am cleaning up some of my accounts and doing a rollover from my TIAA
accounts to an IRA. I have a couple of TIAA accounts left over from a
couple of employers I worked for 30 years ago. These accounts were
pretty much ignored and left to fester. But now they are worth almost
6 figures. This is without adding any money for 30 years and very
little management. Had I continued to work for those employers and
managed those funds more intellegently, I can easily have a portfolio
of 7 figures. These were not jobs that paid a high salary. So anyone
who continue to save money and manage money throughout their career can
easily retire with a pretty hefty portfolio.
Well (duh!)... Ain't that what we've all been trying to tell folks for
You now have a shining example of exactly what can happen when
you let money sit and breed for a while.
Almost like magic, ain't it!
Too bad most folks can't/won't get it. No matter how many times
you tell 'em. No matter how many examples you walk 'em through.
They just don't get it. Even worse, they reject the whole concept
of compounding -- making it far worse when they're *paying* interest
instead of earning it.
I'm beginning to think that some folks just aren't wired for it. Sure ...
mathematically they can understand compounding ... but they just don't
have the self-dicipline to NotSpendIt(tm).
Kudos. You made a good move by sitting on the accounts and not
spending it away. Congrats!
You belittle others for their ignorance. What I find
ignorant is your not asking why these folks do not get it.
Obviously (to you and me) it pays to understand financial
planning. So why is this not obvious to everyone? When you
try to answer this question thoughtfully, and apply what you
learn from your effort to teaching others, then you will
know something of real intelligence.
There is tough love and then there is whining and not
contributing to a solution.
Financial planning should be taught in the schools, high schools certainly,
perhaps elementary schools. But then another breed of whiners would complain
that the schools should stick to the 3Rs and not get into practical life
I've tried ... Believe me I've tried. If you've got a suggestion,
I'm open to it.
Parents: Bankruptcy, 1989.
Sister: Bankruptcy, 1997 -- heading for another (if they'll let her
with the new laws)
Uncle (in-law): Bankruptcy, 1999 after burning through a 6.2 million
dollar inheritance in under 5 years.
You can talk to these folks until you're blue in the face and it will
get you nowhere.
It's not meant to "belittle" -- it's merely a statement of fact. Folks
are in Denial about finances. ***
I have employees at my shop. I counsel every one of 'em at least
once a year on participation in our retirement plan (NOTE: We
offer a SIMPLE IRA.)
I put together individualized spreadsheets with their numbers, from their
salary, and realistic rates of return/inflation numbers. I show them what
their expected SS payouts will be, and how far below their current
standard of living that will leave them.
I walk them through example after example and ... yes -- they
understand the math. Yes -- they can reasonably afford to participate
(we're a software development shop -- salaries are quite high when
compared to median incomes. We're in the midwest, expenses are
quite low when compared to the rest of the country. )
We have our finance guy -- the one who runs the IRA -- a
professional investment advisor -- he comes in to meet with
each and every new hire, individually, to discuss their plans
And yet ... I still have folks who won't participate. I'm trying to
give them FreeMoney(tm) in the plan offered and they still won't
take it. (Me) "Here! Take this money! I'm giving away FreeMoney(tm)"
(Them) "uhhhh ... no thanks ..." ***
We have one guy who uses the SIMPLE IRA as a personal
savings account. Let it build up for a year or two -- BAM!
Withdraw it all and buy a $6,000 entertainment center/ home
theater system. Let it build up another year or two -- BAM!
withdraw $7K for a 3 week trip to Europe. Let it build up
another year or two -- BAM! Withdraw it all to buy a new
car (had to pay for the "upside down" portion of old car
before buying new -- they wouldn't let him roll it into the
new car loan.)
You get the picture.
If you've got suggestions, I'm wide open.
I ask myself every day -- a recurring family history (above)
of bankruptcy and no financial discipline. Employees ... *educated*
employees with Math, Science, and Engineering degrees. The only
thing I can come up with is denial. Pathological denial.
Not sgt, but my own anecdote-
my wife has family which has won the lottery twice. The first time
they burned through the money and had to go back to work. Jury is
still out on win #2.
bankruptcy also in my wife's family and she wonders why I want to save
as much as I do.
There are people like that out there...
Have you looked at the stats on lottery winners? Pretty much every one
of them declare bankruptcy after a few years. You get a lumpsum of
cash, quit your job and you start spending as if you had a regular
income of that much. Except after a few years, you run out and you
can't ramp your spending back down.
Getting an inheritance is pretty much the same deal. Unless you get an
inheritance so gigantic you can't spend all your money if you tried.
[snip other good detail for brevity in this reply]
Sgt., thanks for sharing your specific experiences with
recklessness in saving and spending. For what it's worth, I
think such anecdotal data does persuade others. Maybe not
after the first telling, nor after the second, but the point
is bound to get to at least some people sooner rather than
later through the sharing of examples like this.
Here's the real power of compounding;
The 'indians' sold Manhattan for $24 in 1626, 380 years ago.
There's no reason to thing that investments would have returned less
than the 10% we've seen in the last 100 or so years, so 1.1^380 $1.2x10^17, this is a 1 with 17 zeros after it. I can't even pronounce this.
Even at 6%, it turns into $99 billion dollars.
Its fun to play with big numbers, but I was wondering if there was
any extant centuries-old financial institution which you could
manage an investment in. I did a quick look at google/wiki and saw:
Oldest extant banks are from Italy. One claims 1472.
German from 1500s, UK from 1700.
The Vatican Bank isnt that old.
The oldest reference to interest bearing savings account
I could find was 1807 British postal bank.
Oldest extant businesses are family businesses going
back 1500 years in Japan and 1000 years in Europe.
Oldest extant stock corporation I'm aware is the Hudson
Bay Company from 1670. They are a department store
these days. Wiki lists stock corporations in the trade area
starting in 1600, but those didnt last.
Amsterdam Stock Exchange claims to be oldest from 1602.
I'm am sure there are older private financial insitutions.
I disagree with the phrase 'can easily retire with a pretty hefty
portfolio'. It's not that simple-- the underlying assumption is that
one has steady positive returns.
We've been through the highest 30 years of returns on equity assets
ever recorded. Had you invested that money in 1929 (to take an extreme
example) you would barely have gotten it back (up about 50% I think)
Similarly if you had invested in 1905, you would have made a lot of
money, and then lost 80% of it in the last 5 years of your investment.
1966 would have been another bad year to so invest-- after inflation,
you probably would have been in the late 80s before you caught up on
yourself (although to be fair, you would have done well after that as
It would be a mistake to think that such excellent returns will be
easily duplicated in future 30 year periods. *however*
as long as costs (MERs) are low, and overall returns are positive, then
buy and hold (diversified) is still a good strategy.
And living below your income is always a good idea.
however they paid the price on the Continent during the rise of
Bank of England, which was originally privately owned, was founded in
1694 by Isaac Newton, amongst others.
If you held your money in German marks, of course, you were obliterated
in 1924 in the Germany hyperinflation. Eastern Europe you had your
money confiscated when the communists came to power.
The investment du choix used to be the UK government consol. A
perpetual bond paying 2 1/2% (no redemption date). I think Sir Isaac
Newton issued the first one in the 1690s. Although answers.com says
Now my father was given a few of these in 1945. They were the standard
way of putting your money aside for an inheritance. Unfortunately UK
inflation 1945-1990 destroyed their value completely. It was also the
case that the UK government, during the 1930s, unilaterally lowered the
rate of interest they paid (they always had the legal right to do this,
but had never exercised it).
A better investment might be real estate. But you have to pay the land
taxes on the way. All of the truly great fortunes in the world (that
are multi generational) have a significant content of real estate *and*
real estate in countries that were politically stable (the United
States might not count: remember 1861-65?).
Robert Shiller (SECOND Edition, Irrational Exuberance) makes a pretty
good case (using data from Amsterdam since the 1600s, and US data from
1890) that real increases in housing price (adjusted for quality
improvements) are very small-- less than 0.8% real per annum in the US
Stock investment (in limited liability joint stock company) is really
such a new phenomenon (1854 in the UK case, I think) that it's hard to
say whether it is a good investment or not. We don't really have
enough data to make that assertion. Particularly when you note that
whilst the US market has performed very well, many of the world's
largest stock markets in 1890 (Cairo, Buenos Aires, Berlin, Vienna,
Budapest were apparently all in the top 10) subsequently went to 0.
Er? Looking at Shiller's data and adjusting for dividends and
inflation, it appears I would have gotten almost 9000% return (Jan. 1929
to June 2004).
Er (again)? Same data set (this time starting in Jan. 1905) tells me I
would have lost 24% of my total return over the 5 years ending June
2004. Substantial, but not 80%.
If you invested in January 1966 (the high point of the year) you would
have been back to even by August of 1967. Perhaps you're thinking of
the 70's bear market? Investing in Jan. of '73 (the top) was a harsh
reality, not breaking even until Jan. of '85.
Don't forget to check my math,
As Alfred Einstein put it so well "The miracle of the 8th wonder of the
world" COMPOUNDING.Its amazing either you get it or you don't ,once you
see those mutual fund shares you reinvest start compounding on top of
each other over time,thats all it takes and eventually compounding will
do some real heavy lifting of the portfolio
we've all been trying to tell folks for
While killing time on snopes recently I saw that they added a piece on
Einstein/compounding. It seems he maybe never said that. I remember
hearing the quote attributed to Ben Franklin upmteen years ago so I'm
skeptical. But I'm just plain skeptical anyway.
OK Skip I'll try to tie this to financial planning. Snopes is a good
place to look up emails you think are scams because much more often than
not, you'll find it there. For money topics a good starting point to
blow a bunch of time is:
PS and Mikey did NOT die from pop rocks & pepsi!