A friend of mine recently remarked to me about how much his Amazon stock has grown over the past two years. He bought his shares back in 2015 when Amazon was selling at around $400 per share. Today, Amazon sits at over $1,400 per share. As my buddy made clear, that’s well over a 200% increase. He’s killing it, as he likes to tell me.
The thing is, I know this friend. He’s what you’d call an average millennial – no retirement savings, very little knowledge about finances, and essentially a non-existent savings rate. Still, in his mind, he was killing it since this one investment he’d made three years ago – buying a few shares of Amazon – had paid off so well. And no doubt, it did. He turned $1,200 into over $4,000. It’s nothing to sneeze at.
At the same time, celebrating turning 1,000 bucks into 4,000 bucks misses the point. In the grand scheme of things, a $3,000 gain really doesn’t move the needle much when you think about what we’re really trying to do. We’re out here trying to save up enough money so that we never have to work again! A few measly thousand dollars isn’t going to be enough to do that. We need many, many thousands of dollars. And to do that, we need to do the most important thing – save A LOT of money!
It’s this emphasis on getting big returns that I think a lot of new investors mistakenly focus on. The truth is, in the beginning, your rate of return basically means zilch since you’re starting out with so little money. It doesn’t matter if your early investments go up 100% or tank tomorrow.
What really matters is that you’re brute force saving as much money as you can so that someday, in the future, your rate of return will actually mean something.
200% of Nothing Is Still Nothing
I’ve always been confused about why new investors care about their investment returns so much. Most likely it comes from a misunderstanding of how investment returns work. Most people know that rate of return matters, but a lot of people don’t understand that it really doesn’t matter until your numbers get meaningfully large.
The example I always use to illustrate this is the magic doubling penny hypothetical. For those of you who are unfamiliar with this example, the magic doubling penny goes like this. You start off with a penny, and each day, your penny doubles. On day two you have two pennies. On day three, you have four pennies. And so on, and so on.
Here’s what it looks like if your penny doubles every day, for 30 days:
The magic doubling penny is typically used to show the awesome power of compound interest. And it works to do that. As we can see, given enough time, a small amount of money can become a really large amount of money.
But I think an example like this can also encourage the wrong type of thinking. Instead of focusing on the thing that really matters early on (actually saving money), a lot of people focus too much on the thing that doesn’t really matter early on (their rate of return).
Just look at the doubling penny again. Most people ignore or don’t really look at how small those numbers are early in the compounding process. Even a 100% return means very little in the early stages – a penny becomes two pennies which becomes four pennies. 100% or 200% of nothing is still exactly that. Nothing.
You can see that the growth really only starts to happen towards those last few days when there’s actually a significant amount of money saved up. What that means is that, instead of focusing on the rate of return, we should focus on the only thing that we can control – putting as much money away so that we can get to those big numbers.
Build Up Your Stash Of Money First – Worry About Your Rate Of Return Later
The fact is, the rate of return just doesn’t really matter all that much when you begin your investing career. Losing or gaining a few thousand dollars isn’t going to change your life. Even a few hundred thousand dollars won’t matter that much. I saved over $30,000 by myself last year. Even if my investments dropped by $30,000 this year, I’d make it back up just by the brute force savings I put in each month. As a result, I really don’t care what my rate of return is right now – even with over a $100,000 invested right now, it’s still ultimately small potatoes to what I really need.
When the crypto-currency stuff was going crazy, I remember people online and in person bragging about the few thousand dollars they’d made because their crypto had gone up by a couple thousand percent in a few days. I remember one YouTuber online bragging about how he’d made $3,000 or so in a week.
Honestly, it never impressed me that much. It’s fun, sure. But will a couple thousand dollars change your life? Does it really matter that you made a few thousand bucks on your tiny investment when you consider that you need to be making way more than that every year if you want to never have to work again?
Sure, your rate of return can matter – it especially matters when you have a lot of money saved up. A 10% return on a million dollars is $100,000 dollars. That’s significant money that will change your life. A 10% return on $10,000? Well, that’s $1,000 – it’s nice, but does it really do anything for you?
Get to those big, unfathomable numbers first. Then you can go and worry about your rate of return. Until then, you’re just playing with numbers.
More Recommended Ebike/Scooters
Check out these other ebikes/scooters I've had the chance to do a review for:
- GEN3 Outcross Bike – The GEN3 Outcross is a solid, affordable fat tire ebike that does a good job of doing what I need it to do. It works great for city riding, giving me a smooth ride in all conditions. It’s works really well as a winter ebike since the fat tires give it good traction over snow and ice. Check out my GEN3 Outcross Review.
- Himiway Escape Bike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Bike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($10) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with $100 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
- Moomoo (5 free stocks) – Moomoo is a free investing app currently offering 5 free stocks (usually worth around $75-$100) if you open an account using a referral link and deposit $2,000. Read my Moomoo referral bonus guide for more information.
- Webull (5 free stocks) – Webull also gives you 5 free stock valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free stocks using Webull.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- Digital Federal Credit Union ($100) – Digital Federal Credit Union (DCU) is a free, nationwide credit union that I recommend to readers for two reasons. First, DCU has a $100 referral bonus if you open a free DCU checking account with a referral link. Second, DCU has a saving account that gives you 6.17% interest on your first $1,000. Check out my in-depth post on how to set this account up.
- Upgrade ($100) – Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Importantly, this bonus says that it’s now scheduled to end on January 31, 2023. As long as you get your account opened before January 31st, you should be eligible. Here’s a post I wrote with more details: Upgrade $100 Referral Bonus – Step By Step Directions.
- SoFi Money ($275) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $250 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link.Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- Fairwinds Credit Union ($100) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
- OnJuno ($60) – OnJuno is a fintech/neobank that is currently offering a $10 referral bonus if you open an account using a referral link and make a deposit of $50 or more. You will also get 1000 JCOIN. The 1000 of JCOIN is cryptocurrency. At the time I'm writing this, it'll be worth about $50. Check out my OnJuno referral bonus guide here.
- Varo ($30) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $30 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- Albert ($150) – If you can manage to do a real direct deposit, Albert is an easy account you can use to earn a referral bonus. Here’s a review about Albert I wrote. And here’s a step-by-step guide on how to earn your Albert referral bonus.
- Netspend ($20 + 5% Interest Savings Account) – Netspend is a company that provides 5% interest savings accounts. If you sign up using my referral link, you’ll get a $20 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $20 to start! Make sure to check out my in-depth guide on how to set up these accounts.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $250 if you complete a direct deposit.
- DCU. Digital Federal Credit Union (DCU) is a free, nationwide credit union that I recommend to readers for two reasons. First, DCU has a $100 referral bonus if you open a free DCU checking account with a referral link. Second, DCU has a savings account that gives you 6.17% interest on your first $1,000.
- Novo Bank. Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. It’s the business checking account I currently use for this blog.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
Nice post! You make some excellent points regarding the savings rates. Personally, as a millennial I’m hoping the stock market stays down for the time being! That way I can buy more at lower prices and eventually see the bigger returns later on when I have more saved up as you mentioned.
Working on a 50% saving rate this year (would be a record for me) so taking this to heart!
Keep killing it! The great thing is, right now, you basically have nothing to lose. It’s a drop in the bucket compared to what you’re aiming to have one day!
Sagacious advice, Financial Panther! Even though I am aware of the fact my rate of returns means zilch, I still find myself checking my Roth account’s rate of return weekly.
Yeah, I have all of my accounts loaded into Mint, and I can’t help but look at it too. I don’t really think about it too much though.
Great post, Kevin! The math behind FIRE really is pretty simple and you’ve nailed it here – savings rate is the biggest factor in determining when you’ll be able to retire.
Exactly right! And it’s like, who cares if my investment drops right now. It’s still peanuts compared to what I’m trying to do!
Great post! So much better to focus on what we can control, savings rate, instead of the rate of return that we have no control over.
Its the rate of return thing that I think people get so tied to – you can see it now with the market being high and dropping, and new investors are wondering if they should stay out. Who cares!? Even if you put a few thousand bucks in this year and it dropped 50%, that’s only a few thousand bucks. Would you even remember that in 10 or 20 years?
A good reminder we should concentrate on saving and reducing expenses then set an asset allocation. And sit back and let the market do it’s magic.
Exactly right!
Yup. And I think for people who are still figuring out the exact math and learning about investing, it’s easy to let that hold you up to (I should know!). But really if we could just get everyone to save, save, save…there’s a lot you can figure out along the way and then there are other things you can’t control. Thanks for the reminder!
Thanks Penny! Good point about figuring it out along the way. Because you’re right, you just start from zero and even if you make mistakes at the beginning, it’s basically nothing anyway. Just keep going!
This is such a fantastic post, Kevin! I alluded to how investment returns don’t matter much early on in a recent post, but you articulated this concept so well. As an investor with a long time frame, I’m hoping the market goes lower and stays lower for a while. The real returns come from compound interest.
Thanks! Exactly right – it’s the compound interest that matters, but it really only matters once we get to those big numbers!
Thanks for the perspective! It’s true that you either need a lot of time, or a high enough base to really make compounding returns interesting. I’m still working on getting to that base level!