The cost of inaction today could be financial dependence forever
If you’re new to investing, please start by taking this short quiz of 6 questions before moving on. It shouldn’t take more than a few minutes. These aim to give you a basic understanding of the key concepts behind building wealth and will help you answer the question of why do we want to invest in the first place? Click START QUIZ to begin, then click REVEAL to see each answer and uncover the next question.
1. Let’s assume that, starting at 18 years of age, you saved $5 each day by having one less Starbucks coffee and put it in a bank paying no interest. How much would you have by age 65? (Use a calculator if you want.) Click REVEAL to see the answer.
What this question illustrates is that, to save money and build wealth, even a small amount of money can make a big difference.
2. So by the time you are 65 you can start spending your savings — but you forgot about inflation! Every year you were saving, the price of everything was rising by 3% (inflation), so your savings can now buy far less than you imagined. What percentage of its spending power has your money lost by 65? (Guess — don’t use a calculator.) Click REVEAL for the answer.
What this question illustrates is that putting your money under the mattress, or in a bank paying little to no interest, doesn’t work in the long run, because inflation eats away at your future spending power.
3. Now picture a chess board of 64 squares. Put a single grain of sand on the first square. On each square after that the number of grains doubles — 1, 2, 4, 8, 16 and so on. How many grains of sand end up on the 64th square? (Guess — don’t use a calculator.) Click REVEAL for the answer.
Almost nobody guesses anywhere close, and that is the point. That 64th square holds 9,223,372,036,854,775,808 grains on its own, and the whole board holds about 18.4 quintillion — so that single last square carries half of everything. Every step is just “double it” — the least dramatic instruction imaginable — yet after 63 doublings a single grain has become more grains than there are on every beach on Earth. This is exponential growth, and the reason it defeats our intuition is that we instinctively expect things to add up when in fact they multiply. Compounding money works in exactly this way: each year multiplies what you already have rather than adding a fixed amount to it.
4. Staying with the chess board: of all the grains of sand on the whole board, what percentage sits on just the last five squares? (Guess — don’t use a calculator.) Click REVEAL for the answer.
Five squares out of sixty-four — under 8% of the board — hold nearly all of the sand, and the final square on its own holds half of everything. Nothing changes in those last squares except that the pile being doubled has become enormous. This is why the first 59 squares look so disappointing, and why patience is the whole game: the early years feel like nothing is happening, but they are the squares every later doubling is built on. Give up before the end and you never see the part that mattered.
5. Now let’s look at a practical example that relates to what we have just learnt. Starting again at 18 years of age, instead of putting the $5 in the bank every day you invested it in a stock market fund, which over the long run appreciated 10% each year. How much would you have by age 65? (Guess — don’t use a calculator.) Click REVEAL for the answer.
What this question has illustrated is the concept and magic behind compounding. Investing in the stock market helped these same savings that were made in the first example grow phenomenally over time and escape the inflationary rot from the previous question. (Note that whilst stocks in the long run have given you roughly 10% gains each year on average, there is no guarantee that this will hold true in the future, and long-run average returns hide the harsh reality that some years are down considerably.)
Inflation has not gone away, though. Using the same 3% from question 2, prices are about four times higher by 65, so that $1.67M would only buy what roughly $416,000 buys today — about 75% of the headline figure is swallowed by rising prices. That is still an enormous result: it is nearly five times the $85,775 you actually saved, and the earlier bank-account version was worth barely a quarter of what it looked like. Investing did not make inflation disappear, it just grew the money fast enough to stay comfortably ahead of it.
6. In question 5 you finished with about $1.67M. During the final five years, from 60 to 65, you kept saving your $5 a day — about $9,125 in total. How much do you think the pot grew by over those same five years? (Guess — don’t use a calculator.) Click REVEAL for the answer.
This is the chess board again, in your own life. In those last five years you put in $9,125 and the pot grew by roughly $640,000 — about $70 of growth for every $1 you saved. Across the whole 47 years you only ever contributed $85,775; every other dollar of that $1.67M was growth. And here is the part worth sitting with: those final five years are the 64th square. They look effortless, but they are only possible because of the 42 unglamorous years underneath them, when it felt like nothing much was happening. Anyone who gives up during that quiet stretch never reaches the part that mattered.
Quiz complete — now .
Move the slider below to see for yourself how the rate of return impacts the value of $100 invested just once at age 20.
Now move the slider below to change the age you start. Push it later to see what waiting costs you, or earlier to see what those extra years are worth.
The cost of time is simply the difference between the two outcomes: what you would have had by 65 if you had begun at 20, less what you end up with having begun later. It is money that never existed rather than money you spent.
Most of it is not the contributions you skipped. Waiting five years means about $6,000 less paid in, but the pot falls by far more than that, because the payments you missed were the earliest ones — the ones with the longest left to compound. That is why the first few years of delay cost so much more than the last few.
Type any number you like. If it falls outside a slider’s normal range, the range simply widens to fit it.
These sliders are the whole basic model: pay in until the age you choose, then leave it alone. Taking an income out is handled separately, further down.
Portfolio value at user defined age 65 — use slider to change age
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16100
Part two
Four tools that take the model past simple saving. The first turns the pot into an income you can live on. The second works backwards from the income you want to the monthly saving it needs. The third looks at how the money might be split across different investments, and what those splits returned in the past. The fourth shows what happens if you live on the dividends rather than selling anything.
These are teaching tools, not planning tools. Each one runs on assumptions you choose, applied smoothly and evenly across decades. Real markets are not smooth, real dividends get cut, real inflation moves, and tax and charges are ignored throughout. The numbers they produce are arithmetic about your assumptions, not forecasts about your life. They are here to show how the mechanics work, and nothing more.
Everything above assumes you never draw an income from your savings. Switch this on to start drawing an income at a user defined age with optionality for dollar or % of investment based withdrawals, both of which can be toggled to increase each year in line with inflation.
The same portfolio, with an income taken
Pot when income starts, age 60
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Portfolio hits zero at age
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Portfolio value at age 80
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16100
Every withdrawal here is a sale, so the tax that applies is capital gains tax. The rate varies enormously: it depends on the country you live in, the account the money sits in, how long you held the asset, your other income, and in several places it is nothing at all. There is no rate that is right for everybody, which is why this is a slider rather than a number.
A flat rate on the whole withdrawal is a simplification. Real capital gains tax normally falls only on the gain, not on the money you originally invested, so a flat charge on the full amount overstates the bill — considerably in the early years, less later as gains accumulate. Use it to see how much tax matters, not to work out what you would owe.
The same drawdown as above, viewed as income rather than as a balance. Each bar is what you would receive that year; the dashed line is the same money translated back into today’s spending power, which is usually the more sobering of the two.
Income drawn at age 70
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The model above runs forwards: you choose what to save and it tells you what you end up with. This one runs the other way. State the income you want, in today’s money, or the age the pot should last to, or pin both together, and it works out the monthly saving that would get you there. Most people can answer “what do I want to live on” far more easily than “what should I put away each month”, and this turns the first question into the second.
Three ways to state the goal. Ask for an income and the answer is the monthly saving it takes, with the pot lasting to 100. Ask for a pot that empties at a chosen age and the answer flips — it is the income your current saving can support, so the dollar slider switches off. Ask for both and you pin the income and the emptying age together, and the monthly saving moves to satisfy the pair. Whichever you pick, your withdrawal settings above step aside in favour of the goal.
You would need to save
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Everything else on this page treats your return as a single number you pick. This section asks where that number would have to come from. It shows a mix of holdings, what each of them actually returned over the period you choose, and how the weights would have to shift for the whole portfolio to have hit your target. It looks backwards only, and it is reference material rather than a recommendation.
This tool is for reference and education only. It is not investment advice, not a recommendation, and not an offer to buy or sell anything. It takes no account of your objectives, financial situation, tax position or needs.
Every figure here is historical. Past performance is not a guide to future performance. Investments can fall as well as rise, you may get back less than you put in, and you can lose your capital in full.
The model is deliberately simplified. It assumes steady returns and ignores volatility, the order in which returns arrive, tax, currency movements and dealing costs. Real portfolios behave nothing like a smooth line.
Before acting on anything here, speak to a professional adviser who is regulated in your jurisdiction and who knows your circumstances.
For reference only. The Your mix column is the allocation the author suggested for his own children. It is one person's judgement about one set of circumstances, not a recommendation for anybody else, and nothing on this page accounts for your tax position, your time horizon or how much of a fall you could live with.
Your target return above is 7%. Below is the mix you suggested, what each holding actually returned over the period you pick, and how the weights would have to shift for the whole portfolio to have hit your target. This looks backwards only — it is not a forecast.
Centre is history as it happened. Drag left to assume every holding earns less than it did, right to assume more. A reading of −30% scales each return to 70% of its historical figure, so 10% a year becomes 7%. Cash is left alone — it uses the yield you set above. The adjusted column re-solves against whatever assumptions you land on.
| Holding | Return | Your mix | Adjusted |
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The limits the adjusted column works within
| Holding | Most defensive | Yours | Most aggressive |
|---|
The adjusted weights never leave this range. Two end portfolios set that range. As shipped, the defensive one holds 40% cash, 45% bonds and no bitcoin at all, and the aggressive one holds no cash and no bonds, with 20% gold and 20% bitcoin — but both columns are editable in the section below, once the toggle is on and the box is ticked, so the range is a default rather than a fixed fact. Widen it and you widen what the return slider can reach; the note above will follow whatever you set. Cash earns whatever yield you set above. Your own mix sits between the two ends. When your target return is below what your mix earned, every weight slides the same fraction of the way towards the defensive column; when it is above, they all slide towards the aggressive column. One fraction moves all seven holdings together, which is why the result still looks like a portfolio rather than a bet on whichever asset happened to win.
The default ends were widened deliberately so that target returns up to about 22% are reachable over the ten-year and long-run periods — the earlier limits topped out below 13%, which left most of the slider pointing at nothing. The slider runs to 30%, and anything beyond what the most aggressive permitted mix earned is simply out of reach: the note above will say so and nothing will shift. Reaching even the top of the default range takes a bitcoin weight north of 15%, which is an extreme position dressed up as arithmetic: the same holding has lost more than half its value twice, and a portfolio built to have captured its past run is not a portfolio built to survive its next fall. Over the five-year period 20% is out of reach at any default weighting, and the note above will say so. If you edit the bounds you can of course make almost any target reachable — that is what the editing is for, and it is worth being honest with yourself about which number you moved to get there.
The alternative would be to let a solver pick any weights that hit the number. Handed bitcoin at 63% a year it would put almost everything in bonds and a sliver in bitcoin — arithmetically right, and not a portfolio anyone should hold. These two end points are a judgement, not a calculation, so treat them as a starting position to argue with rather than an answer — and since you can now edit them directly, the argument is one you can actually have with the table rather than only with the author. Bear in mind what that means: the bounds are the last thing keeping this from producing a portfolio built entirely out of whichever asset happened to win, so moving them is the one change here that removes a restraint rather than testing one.
Everything in this table already happened. None of it is a forecast, and none of it is owed to you. Weights chosen to make a past return look good are the textbook definition of chasing performance — and performance is chased hardest at exactly the wrong moment, after an asset has already run.
The default mix and the two bounds are the only thing stopping this table producing portfolios nobody should hold. Editing the weights removes that restraint, and editing the bounds themselves removes what is left of it. You can put everything into one holding here, or widen the aggressive column until almost any target return becomes reachable, and the table will obediently report a spectacular number. It will not tell you that bitcoin has twice lost more than three quarters of its value, or that a fall of 90% needs a gain of 900% just to get back to where you started.
Nothing in this tool measures risk. There is no volatility here, no drawdown, no order in which the returns arrive, no tax, no currency, no dealing cost. A steady 20% a year drawn as a smooth line is not something that has ever been available to anybody.
Concentrated positions can go to zero and stay there. Capital committed to them can be lost in full and permanently, and no amount of patience brings it back. This is not advice, it is not a recommendation, it takes no account of your circumstances, and it should not be the basis of a decision about real money.
A different way to take an income: instead of selling pieces of the portfolio, you live on the dividends it pays and leave the holdings alone. This section splits your return into the part paid to you as cash and the part left to compound, shows what that income would look like year by year, and what choosing it costs. You can also add selling on top, model a dividend cut, and put tax on both.
The returns used everywhere on this page already include dividends. They are MSCI gross total returns: the price rose and the companies paid out, and both are inside the single figure. So this section does not add income on top — it splits the return into the part paid to you in cash and the part left to compound.
Which is the honest way round, because a dividend is not free money. When a company pays out $1 its share price falls by roughly $1. You have converted part of your holding into cash, usually triggering a tax bill on the way. Take the income and the portfolio grows more slowly by exactly the amount you took.
It starts at the point where the portfolio still grows in cash terms but no longer outpaces inflation — the boundary most people cross without noticing. Drag it down to protect the capital, or up to see what happens when you take more than the portfolio earns.
Tax is where a model like this parts company with reality. Rates differ enormously between countries, and often between people in the same country: they depend on your total income, the account the money sits in, how long you held the asset, treaties between the country you live in and the country the company is in, and withholding taken at source before you see a penny. Some places tax dividends as ordinary income, some at a special rate, some barely at all. Several charge nothing on capital gains.
And a flat rate on the whole sale is deliberately simplified. Real capital gains tax usually applies only to the gain, not to the money you originally put in, so a flat rate on the full withdrawal overstates the bill — sometimes by a lot in the early years, less as gains build up. Treat these two sliders as a way of seeing how much tax matters, not as a calculation of what you would owe. For that, ask someone who knows your jurisdiction.
Income here is a fixed share of a growing portfolio, so it rises every year and never falls. Real dividends do fall.
The model holds the yield still and applies it to the portfolio value. Because the portfolio compounds, the income compounds with it, growing at the total return minus the yield — 5.30% a year at the default settings, or about 2.2% after inflation. Over thirty years that multiplies the income roughly four and a half times.
That mechanic is defensible: a constant yield is the same as assuming dividends per share grow at the same rate as prices, which is roughly what happens over long periods. If payouts grew more slowly than prices forever, yields would trend towards zero.
What it cannot show is the bumps. Nothing in this model is volatile, so the income line only ever rises. In reality global dividends fell 22% year on year in the second quarter of 2020, and the fall after the 2008 crisis was worse still. Dividends are steadier than share prices — that is the genuine argument for income investing — but steadier is not the same as guaranteed. Switch on the cut below to see what one bad year does.
Default is 20%, close to the real thing: global dividends fell 22% year on year in the second quarter of 2020, and further after the 2008 crisis. The model assumes the payout never recovers to its old path — a permanent step down — which is the harsher and simpler assumption.
Total dividends drawn
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Portfolio at the end
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after taking the income out
Had it been reinvested
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same period, nothing drawn
Capital left at the end
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Net cost, after counting the income
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Every investment pays out a different amount of cash each year, and some pay nothing
at all. The yield is what a holding hands you annually as a percentage of its
value; the contribution is that yield scaled by how much of your portfolio sits
in it. Added together they give the income your whole portfolio produces.
Figures are current distribution yields from the MSCI factsheets (July 2026). Bonds is an
estimate of the Global Aggregate’s yield to maturity; cash follows the yield
you set in the allocation section. Yields drift with prices in real life; this
model holds them still.
| Holding | Yield | Weight | Contribution |
|---|---|---|---|
| Blended yield | — | ||
Blended yield
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What this mix returned
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In the two income holdings
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everything else shrinks in proportion