Monday, February 5, 2018

What If I Stopped Investing

I love running hypotheticals and different formulas on my spreadsheets to see where I'll be in a few years time. One of the things I was thinking about was how would I be doing in 20 or so years if I never invested another dollar starting today? The beauty of dividend growth investing and investing in general is that your money starts working for you. Year after year your money increases and that compounds on the amount each year. The biggest asset you have is your time. There is a famous quote that goes, "time in the market is more important than timing the market." I love this quote, because of the truth in it. As long as you can invest on a continuous basis then you will end up doing very well. 

I was thinking about these hypotheticals this weekend and I ended up running the numbers this morning to see how they would turn out.

They usually say the market increases about 7% a year and I would say my dividend growth is around 5% a year. Now both of these numbers are smaller than my actual growth rates, but I like to underestimate in my hypotheticals and formulas. 

Life is unpredictable and you never know what could happen. If tomorrow I lost my job or became very sick, it's possible that I would have to stop investing or maybe even sell some stock. I hope this doesn't happen, but lets just say I'm forced to stop investing for the next 20 years. Now, because I've invested heavily for the past four years, my dividends and gain on principal will still grow no matter what. 

Lets take a look at where my dividends would be in 20 years assuming a 5% growth rate:

























This goes to show you the power of investing. If you can start early and invest as much as you can then you will set yourself up very nicely. 

Now I would be 47 years old and I would be making $9,000 a year in dividends. This is assuming I don't invest a single dollar for the next 20 years. This is truly incredible as I'm almost 20 years before the "typical retirement age"

This just goes to show you the power of investing. If you can start early and invest as much as you can then you will set yourself up very nicely.

Now lets take a look at the growth of the principal amount over the next 20 years assuming a 7% annual growth rate:


 



Again, I haven't invested another dollar and my money has grown to a substantial amount. This is why it is so important to invest as much as you can as early as you can. Now you can run these simple scenarios, but imagine another 20 years or imagine if you just invested a small amount each year. I will be a millionaire in retirement even if I don't invest another dollar. 


This is the power of dividend growth investing and investing in general. If you have the ability to place your money in high quality stocks for a long period of time, then you will end up doing very well. 



Let me know what you guys think!

3 comments:

  1. I like to do similar things, and it actually gets me into an internal debate of if I should actually stop investing...I worry about getting my RRSP too high so that I'd be paying more in taxes, I wonder about if in the long run I'd be more happy investing less and spending the difference on vacations, etc....but then I tell myself to shut up and just keep investing..haha

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    1. Yes, I figure the more you are paying in taxes just means you are making more money. Its all about getting to a point where you no longer need to rely on your job for income and can live off the dividends. Its better to invest now and stop in 20 years than to stop investing now and then decide to invest a little in 10 years.

      Also, if your only source of income is dividends then you can make a substantial amount before it even gets taxed.

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    2. Oh definitely - don't get me wrong - I'd rather be in this mindset than thinking "should i start saving for retirement".

      One thing I started doing is lowering my RRSP contributions and upping my spousal contributions - Makes more sense to have 2 people with medium RRSPs vs 1 huge one (save on taxes).

      Also I need to start focusing on getting both TFSA's maxed out..probably have to reduce RRSP contributions to make that happen though.

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