Charlie Bilello, here.
But I have problems:
If a household saved 1% of their disposable income per year and earned a 10% rate of return, they would have a balance of $99,272 after 30 years.
Alternatively, if they saved 10% of their disposable per year and earned only a 1% rate of return, they would have a balance of $209,927 after 30 years.
That’s a 111% higher ending balance for the 10% savers as compared to the 1% savers even though their annualized investment returns were 9% lower.
He doesn't mean the "returns were 9% lower" since he's already stated the returns were 111% higher. He means the return RATES were 9% lower. But that's not true. The difference between a 1% return rate and a 10% return rate is not 9%.
It's 90%.
He does it again here, twice:
For instance, if a household only saved 1% per year and earned a 5% return, after 30 years they would have $40,096. Earning a 6% return would bump that up to $47,712, a 19% increase.
By comparison, if their returns stayed at 5% but they were able to save 1% more per year (2% savings rate), they would be left with $80,192 after 30 years. That’s a 100% increase in the ending balance through saving 1% more versus a 19% increase from earning a 1% higher return.
But the difference between saving at 1% vs. 2% is not "to save 1% more" nor "saving 1% more".
It's saving 100% more.
Aka double.
Furthermore, the difference between returns paying 6% and 5% is not "earning a 1% higher return".
6% is a 20% higher rate of return than 5%.
He means 1 point of return.
This sort of confusion runs rampant in America, even with a guy who clearly knows how to do percentages and has a very consequential story to tell, and it has to do with imprecision of language. Increasing by one percentage point from 1 to 2 is an increase of 100%. Increasing a percentage by 9 points from 1 to 10 is an increase of 90%.
It shouldn't be surprising that increasing savings RATES by 90% and 100% produces returns in the end which are also of the same magnitude higher, but for some reason it is.
The precision of the math he presents is extremely important, but the language isn't precise at all.
@charliebillelo has 475k followers on Twitter, lol.
A society which loses such precision is a confused society, and it's showing up in everything, everywhere.
