There is a nice tool that goes hand in hand with this subject about compounding. It is called “The Rule of 72”. It uses simple arithmetic (division) to determine the number of years it will take for your money to double (assuming that there are no additions or withdraws) based upon a set rate of return. For example, if you have $500,000 and you anticipate that you will earn 7% per annum, you divide 72 (hence the name Rule of 72) by 7 (the rate of return) and you reach 10.28 years. So in 10.28 years your account will be worth $1,000,000. Conversely, if you achieve a rate of return of 10 per cent, it will take only 7.2 years (72/10) for your money to double. 8% will double your account in 9 years, 9% doubles it in 8 years, etc. Again, this assumes that there are no additions or withdraws of the principal amount.
Official - Transitory
UNCLASSIFIED
From: TSP_Strategy@yahoogroups.com [mailto:TSP_Strategy@yahoogroups.com]
Sent: Monday, April 10, 2017 12:27 PM
To: TSP_Strategy@yahoogroups.com
Subject: [TSP_Strategy] Einstein's TSP
TSP investing: What would Einstein do?
By Mike Causey |
April 10, 2017
Historians can’t agree whether Albert Einstein, one-time government employee, actually said that “compounding is the eighth wonder of the world,” or words to that effect. But if his federal job (with the Swiss Patent Office) had an investment option like the Thrift Savings Plan, odds are Mr. E=MC² might have wound up as a millionaire by investing from day one, investing steadily, taking advantage of the government 5-percent match and the miracle of compounding.
Many, if not most, of the current crop of TSP millionaires did it the hard way. They didn’t bring money into government from their outside retirement accounts. They invested for decades, stuck with the C and S funds (stock indexed). Those under the CSRS system didn’t qualify for the 5-percent agency match. But over time they hit the seven-figure number. More are added each month as their account balances edge over $999,000. And while looking at the tables is fascinating, and helpful, hearing from an actual TSP millionaire is gold. Which is why the email below was such a treat. Check it out:
Mike:
You have recently written about federal government employees with $1 million-plus TSP accounts.
I am one of them. How I got there is important. I started saving immediately when I joined the government 28 years ago. First, I contributed enough to earn the match (free money after all) , then every time I received a raise, I added some of it to my contribution until I maxed out. I never missed what I didn’t have on hand. At 50, I took advantage of the catch-up benefit.
Throughout, I invested in a balance, diversified set of investments (C, G, and I). I knew I was investing for the long haul, so I weighted toward stocks (e.g. the C fund at about 70 percent). And I didn’t pay attention to the daily market fluctuations . I stuck to my strategy through the market highs and lows. I never tried to time the market or react to changing market prices, because I knew I was in for the long haul, where fluctuations inevitably smooth out.
And then I benefited from the power of compounding. How powerful?
Here is what my last TSP showed:
“Your Lifetime TSP Contributions:
“Traditional $285,745
“Roth $34,654
“Catch Up $33,780
Total $355,179.”
That’s right, my contributions of $355,000 turned into $1.1 million over 28 years.
I know someone wrote in and said you should not write about millionaires in the federal government as if somehow federal workers were given free money. I think the above example shows that is hardly true.”
—Anon
The good news is that the number of TSP millionaires went from 3,000 to 5,559 last year. And more are moving into the $1 million club every month, thanks to the large number with balances in the $700,000 to $999,000 range. Statistics and charts are fine, and helpful. But hearing from actual millionaires is very neat. Let us know when you hit the $1 million mark, and how you did it.
Posted by: "Bent, Edward A" <BentEA@state.gov>
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