The long-term gains from a higher savings rate will trounce the gains from earning higher returns

 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.

 

 

Surprise, The New York Times thinks Denmark, the land of the drunk, mean and discriminatory, is just wonderful!

Here, lying through its teeth, as usual:

'[Hillary] also said, “We are not Denmark.” Nope. Not by any stretch. Denmark has a slightly higher tax load on its citizens than the United States. But it also has budget surpluses, universal health care, shorter working hours, and was recently rated by Forbes magazine as the best country in the world for business.'

Hm, the same place as this:

"Yeah yeah, I’m being too harsh. Every country has problems, Denmark’s are just different from the ones I grew up used to. Overall, Denmark is quiet, introverted and socialist, my three favorite things. Also, if I ever want to spend a weekend being drunk, mean and discriminatory, at least now I know where to go."

The Danes lately excel at being in hock, in addition to being drunk, mean and discriminatory:

"Danish households owe their creditors 321 percent of disposable incomes, according to the Organization for Economic Cooperation and Development. That’s the highest ratio in the world and a level that’s prompted warnings from both the OECD and the International Monetary Fund to rein in borrowing. Danish authorities have argued that households aren’t at risk thanks to high pension and household equity levels."

Denmark has the top tax rate in the OECD in 2014, 60.4%, ahead of Sweden (56.9%), Portugal (56.5%), and France (54.5%). The rate for the US is listed at 46.3%.

Denmark's top tax rate is 30% higher than in the US. That's what The New York Times means by "slightly higher".

Denmark not coincidentally is a global frontrunner in depression and mental illness. It consumes 84 antidepressant doses per day per 1000 of population, second only to Iceland (101 doses).

Real Personal Income Still Remains Below The 2008 Peak

Real personal disposable income per capita remains in depression, over 5% lower than it was on May 1, 2008, the all-time high, when it reached $34,641.

As of November 1, 2012 it is at $32,868.

Graph and data here.

Obama is presently swimming the holiday away in warmer climes as his party happily prepares to see your taxes increased on your reduced and stagnating dreams.

The Depression In Real Disposable Income: We're Stuck At 2006 Level

The most recent observation of inflation-adjusted disposable personal income per capita shows that we're still at the level reached nearly six years ago.

'Compassionate' Elites Plunder The Middle Class To Help The Poor

They don't call them levelers for nothing.

Seen here, in which a single parent of three making $3,625 can end up with more disposable income than a similar person making $30,000, or one making $14,500 ends up with more than one making $60,000:

GDP, Q3 2011 First Report, at 2.5 Percent; Personal Savings Drop Big

See the full pdf at the Bureau of Economic Statistics, here.

Personal savings fell a full percentage point, or $116 billion, while personal disposable income went up $17 billion, matching exactly the increase in personal outlays of $133 billion.

Get it? People are saving less and spending any increases just to get by because of . . . increasing prices.

A falling savings rate, now at 4.1 percent, is woefully inadequate. A person saving at that rate making $50,000 per year would need over 12 years to save just 6 months' expenses.