Contributions Are More Important Than Compounding (at first)

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Happy Friday! In today’s email:

  • The Teeter Totter of Compounding vs Contributing

  • The risk of individual stock picking via my post of the week

  • A free investing webinar my friend Marc is hosting

  • And more…

Invest before this company becomes a household name

What if you had the opportunity to invest in the biggest electronics products before they launched into big box retail, would you?

Ring changed doorbells and Nest changed thermostats. Early investors in these companies earned massive returns, but the opportunity to invest was limited to a select, wealthy few. Not anymore. RYSE has just launched in 100+ Best Buy stores, and you're in luck — you can still invest at only $1.50/share before their name becomes known nationwide.

They have patented the only mass market shade automation device, and their exclusive deal with Best Buy resembles that which led Ring and Nest to their billion-dollar buyouts.

The Teeter Totter of Compounding vs Contributing

To explain this, let me show you some math with a guy named John. John currently contributes $500 a month to his portfolio. He started a couple years ago & his portfolio is now valued at $15,000. It is currently the beginning of the year.

John goes through the year adding his $500 per month, which is $6,000 total for the year. During that year his portfolio had a market return of 10%.

  • Value at end of year: $22,500

  • Market return: $1,500

  • His contributions: $6,000

John is currently here:

This means majority of his portfolio growth came from him contributing more money. While the returns from the market are great, the big driver of the portfolio growth year over year came from him just adding more money every month. To be clear, when I am talking about portfolio growth, I am talking about the overall growth of the value, not return on dollars invested growth.

Let’s say we get 10 years down the road & John now has a portfolio of $120,000. He is still contributing $500 a month to his portfolio. Same 10% return for the year, but let’s look at the breakdown.

  • Value at end of year: $138,000

  • Market return: $12,000

  • His contributions: $6,000

This time most of his portfolio growth came from market returns rather than him contributing more money. This does not mean John should stop contributing to his portfolio (because what if we have a down year), rather it just shows us that as we get a larger portfolio, more of the growth will start to come from market returns rather than contributions.

Lastly, let’s fast forward to the time when John has a portfolio valued at $600,000. He is still contributing $500 a month. Same 10% return for the year, but let’s look at the breakdown.

  • Value at end of year: $666,000

  • Market return: $60,000

  • His contributions: $6,000

John is currently here:

This time majority of his portfolio growth came from market returns. This is where the compounding side of the teeter totter is strong. This is where the “boring” average returns in the market are not that boring.

Why do I share this with you?

Most people will give up at the beginning. Most people quit when they have a smaller portfolio because they expect the teeter totter to be different. They expect the market returns to take their $10,000 portfolio to $100,000 fast. But truth is, unless you are taking on a lot of risk with options & trading, that just simply won’t happen.

The growth of your portfolio early on will be heavily reliant on you just being consistent in your contributions every month. I know that may not be what you want to hear, but that is how it is. Do not give up before the teeter totter starts to shift more to compounding. I promise, it is worth it to keep going.

Exclusive Free Webinar

I have partnered up with Marc from BetterWallet to help you on your investing journey. Marc is hosting a free webinar teaching you how to build a bulletproof investment portfolio. Claim your spot now!

This is a 1 hour webinar that will go over the exact strategy I used to build my investment portfolio of over $500,000 at 26.

Why I trust Marc to teach you about investing:

Marc Russell is a top financial educator and coach who spent most of his childhood in foster care before being adopted at 13 years old. 

After self-funding his college education, he climbed the ranks at top financial institutions including companies like Vanguard and BlackStone where he became a licensed stockbroker and financial advisor.

Despite his career success, Marc struggled with debt until he used his own financial tips to pay off $80,000 of debt and build his business, BetterWallet®, which teaches new investors how to manage their money, strategically. BetterWallet® is now an online community of 280,000 strong!

Marc’s work has been nominated for multiple financial education awards and has been featured in numerous publications, including Time Magazine, CNBC, Harvard Business Review, Bankrate, Forbes, and USA TODAY.

X Post of the Week

I always remind people that individual stock picking is realllllllly tough. I made this post on X this week as a joke, but also serious. Do you remember when Peloton stock was the talk of the town in 2020-2021?

At the end of 2020, Peloton stock was trading above $160 per share. Today, May 3rd, Peloton stock is trading at… around $3.13 per share.

That’s a ~98% decline from the 2020 high.

I am not one to wish a downfall on any company, however I remind you of this company to say picking individual stocks is not as easy as it sounds. I remember a lot of hype around Peloton stock when it was trading at highs. Just be careful when picking individual stocks, especially high growth stocks. You can make a lot of money, but you can also lose a lot of money. Risk vs Reward.

New Podcasts Episodes

  • 64: Four Things I Have Done To Grow My Net Worth to $500k at 26

  • 65: My Followers Give You Their Best Financial Tips

  • 66: Contributions are MORE Important Than Compounding (at first)

You can listen to them on any podcast playing app here:

See you next Friday!

A reminder: The goal of my newsletter, my podcast, my social media is to help educate you on money & make sure you set yourself + your future generations up for success with money!

Thank you so much for reading & I will see you next week! Until then, keep buying assets.🙂 

- Decade Investor

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