Hey Tackle Team. I just wanted to take a break from all the Covid-19 talk and talk about something that I find fascinating: compounding growth. I remember a question I ran across in the clubhouse some time ago asking how long it should take to turn $10,000 into $100,000. The short answer: It depends. I hate that answer as much as the next person, but it really does depend on so many variables. It depends on what kind of system is being used, how much leverage is being used, what kind of position sizes are used, and the skill-sets of the trader implementing all these concepts.
Let’s just say you have a system with an expectation of a 3% return a month on average. If I had to say, that’s a pretty conservative, but healthy, number. The market has an average yearly return of around 10%. Which is less than a 1% return every month. So 3% is a conservative number that also beats the market average. You can learn the compounding equation if you want but the easy method is to use the compounding gains calculator in the trade center. If you plug all the numbers in and keep hitting the “+” button next to the number of months until the final balance is over $100,000, you get a total time of 78 months, or 6 and a half years.
Not bad if I had to say so myself. A quick google search led me to a survey by Charles Schwab that said most Americans believe they need $1.7 million to comfortably retire. If the system maintains a monthly average of 3% then that $10,000 would be worth $1.7 million after 174 months, or 14 and a half years. Not bad for a whopping $10,000 initial investment, but we’re ignoring a key component to the equation: monthly contributions!
Let’s say you are like me and work full time as well as trade. What if you took some of your non-trading income and contributed to your trading account. Let’s take someone with a yearly income of $50,000, for example, and contribute 10% of that into the trading account and see what kind of numbers we get. 10% of 50,000 is 5,000 so the monthly contribution should be $416.
Now the total amount of time to get to $1.7 million is 145 months, or 12 years. That’s knocking off 2 and a half years! And this model also ignores the fact that you will become a better trader as time goes on which could potentially increase the monthly rate of return.
If you are having trouble setting goals, both long term and short term, I would use this calculator to aid you in your struggles. When setting your goals, it’s better to set easily achievable goals at first so you get a boost of confidence when you reach them instead of getting crushed when you set extravagant goals and fail. The last thing you want when starting to trade (or anything new in life) is to set goals that are out of reach to begin with. If you are brand new, the only goal you should have is to learn terminology and your trading platform. Then I would learn systems that fit your personality, backtest those systems, and use those numbers to help set your short and long term goals.
Good luck on this roller coaster ride ahead of us and don’t forget to wash your hands! 😊
Justin started his trading journey during a 3-day workshop with Tim Justice in April of 2018. He has always been interested in the financial markets and the opportunity it potentially provides. He likes trading stocks and options. Outside the markets, he’s a husband, father of two boys, and full-time automotive technician.
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