Why I am saving like crazy, in 3 charts.

The following post is not to garner sympathy for my personal situation, but to rather show how my generation, during the years in which we established careers, got married, started families, and attempted to plan for our adult lives, have done so without the benefit of market forces that would supposedly allow one to build enough wealth to retire by simply making prudent choices.

Graph 1:  DJIA 10 yr rate of return for the preceding 10 yr period

Notice that my investing period started 10 years ago, meaning that my 10 yr rate of return is 3%, which is historically terrible.  It's actually worse than that, as after that first year of investing the rates of return have continued to fall, so my 9 year rate (2nd year of investing) is even worse.  In fact only the 1,2,3,4 and 10 yr rates are even positive as of the close of 2012.  Thankfully, I made some smart/lucky choices that earned a significantly better return than had I invested in a fund tied to the DJIA, but was still low compared to historical DJIA returns.

Graph 2: Inflation adjusted change in value of every dollar invested in a DJIA indexed fund 10 years prior.

When adjusted for inflation, every $1.00 I invested in 2002 is worth $0.89 in today's dollars (last point on the graph).  It hasn't even kept up with inflation.   That I most heavily invested during the period of 2004-2010 just makes it even worse.

Graph 3:  10yr net growth of ages, none inflation adjusted.  source:

This isn't annual growth, it's 10 year growth.  In April 2011 the average wage was 4.2% greater than in 2001.  Considering that inflation during this period meant you needed $1.26 in 2011 to buy what $1.00 bought in 2001, and average wage growth resulted in people having $1.04, it's not hard to understand why people feel poorer.  Both the place I worked during the early parts of this 10 year period, and the place I work now, froze wages for several years and laid people off.  Though I am thankful to have kept my employment, there were several years where I took an effective pay cut that will ripple through future pay raises as they tend to be % based.  In all likelihood, I will make significantly less money over the course of my working life because of those years.

The end result is that despite living well below my means in order to invest in my future, I am still facing the likelihood of a fairly lean retirement with little gained from the "magic" of compound interest.