15 years of realized returns in my 401k

In my late twenties, I had a quarter life crisis in which I:

  • Quit my engineering job twice after only 4 years (I earned ~$90k/year when I left)
  • Went to grad school for 7 years, earning no more than $30k/year as an intern, TA, or RA
  • Changed careers entirely

When I look at my current investing balances, I can do some interesting forensic accounting to isolate the impact of those early 401k contributions at the beginning of my career.

I graduated in 2006 with a starting salary of $56k/year. To max out my employer’s match every year, I contributed 8% of my salary and my employer would put in 6%. Therefore, the total contribution to my 401k was 14% of my salary for each year I was an engineer.

When I left my job, I rolled over the 401k to a Vanguard (rollover) Trad IRA. From there, I have since rolled it over to my current employer’s 403b plan to facilitate Backdoor Roth IRA contributions.

Since joining my current employer 5 years ago, I have maxed out my retirement accounts every year (401a, 403b, 457) to the extent that my employer has allowed me to. My portfolio allocation is identical across each account. Further, the timing of the 403b & 457 contributions has been identical. Therefore, any difference in balance between my 403b and 457 is fully attributable to contributions I made early in my career ($382,701-$185,741=$196,690).

The results of my forensic accounting are shown below. I don’t have an exact record of my salary history so I guessed. The timing isn’t terribly precise, but it is close enough.

The magic of 14.0% compound interest over a decade and a half has transformed a mere $40,302 of 401k contributions into just shy of $200,000 today.

That is pretty astounding to consider. I’d be fun to replicate the analysis in another few decades.

A message to my former self:

Thanks for fully exploiting your employer’s 401k match and taking the time to learn about investing when you did (despite the notable absence of any*** financial education during your 18 years of schooling to that point). Your future self and your future (grand)children are grateful for your efforts.

*** This is a slight exaggeration since I learned how to write a check and balance a checkbook in 4th grade.


Obligatory Disclaimer:

We’ve enjoyed incredibly favorable investing tailwinds that are surely going to relent in the future. Nonetheless, the message is clear: start investing early and often; preferably with low-cost investments in tax-advantaged accounts. This advice rings perhaps even more true during periods of low returns, in which taxes and fees can bite particularly hard.


Random Thought:

It would be fun to do a similar forensic accounting of the impact of past life choices on today’s wealth:

  • Marrying a frugal spouse
  • Riding a bike to work most of my career
  • Owning crappier cars
  • Not paying for a cell phone plan since 2003
  • Brown-bagging to work daily
  • Cooking meals at home
  • Avoiding costly cable subscriptions (e.g. using rabbit ears)
  • Bulk shopping at Costco
  • Optimizing credit card rewards
  • Pursuing cheap hobbies (disc golf, climbing) and vacations (backpacking)
  • Largely self-insuring through high-deductible insurance plans


12 thoughts on “15 years of realized returns in my 401k”

  1. A good article. I knew a concept of investing from my HS, but even during my MBA we didn’t know how to properly pick stocks or invest. So, I didn’t know about Vanguard until about 10 yrs ago and you can say missed the boat, currently in my early 40s, with this market’s appreciation. How do you invest, everything in SPY ?

    • I’ve published my portfolio allocation on a monthly basis for the past 5 years. I’m a boring 70% domestic / 30% international equity index fund investor. I can’t specifically recall what my portfolio allocation was in my early-mid 20’s. Probably something not too dissimilar.

      The first investment I ever bought was a four-in-one index from Fidelity, FFNOX. That would have been in 2005 when I was still in undergrad. We’ve fully funded our IRA’s every year since then (though we raided them to buy our first home). It adds up.

  2. Great message. I agree. When I was in the 10th grade, I read “The Richest Man in Babylon.” Among its suggestions was to invest 10% of gross income every year. I decided to invest 15%. And with very few exceptions, I did. Many years I worked p/t to achieve the 15%.
    Took a lot of discipline and delayed gratification. But it’s doable. Nowadays, one doesn’t even have to read the book. See Utube for several explanatory articles on “The Richest…” Easy reading; simple graphics, great advice.

    Bottom Line: Invest 15 % in very low or no cost Total Market Funds. I suggest: VTI with Vanguard; FZROX with Fidelity.
    That’s all you have to do. Relax give it time.
    The Frugal but well to do Retiree.

    • The Richest Man in Babylon remains one of my favorite personal finance books. I read it in my early 20’s. It’s certainly not very specific (e.g. no stock picking tips), but the lessons conveyed are incredibly useful.

      I agree on the simplicity of the formula. Complexity is promoted by those with a financial interest in confusing us (e.g. financial advisors, financial media, etc.).

  3. Great breakdown. Employer match really helps. I started my career late and made mistakes like not maxing every year and taking out a 401k loan. Nevertheless, the last 5 years $55k of contributions grew into $160k. Without the mistakes I would be doing far better, but without that match I would be nowhere near where I am today.

    • Congrats on your progress! I agree that the match makes a huge difference that is easily quantified. 43% (=6%/14%) of that $200k is directly attributable to the 401k match. Ironically, I forfeited this match as an intern at the same company because an HR lady told me to. That experience ended up lighting a fire in me which transformed me into the weirdo I am today.

  4. Nice article! I have a pension plan from a former employer that I am unable to contribute to any further, so I am VERY curious as to how that will grow over time. Can’t touch it until I’m 60 (or 55? need to check actually), so it will have a chance to compound for roughly 30 years. I can’t recall exactly if I maxed it out, but I sacrificed some (all?) of my bonus into it too, so it has some decent contributions inside, probably a similar level to yours. Definitely a fun “experiment”.

    • It’s really neat to be able to isolate the effects of specific contributions to wealth decades later. It’s harder to isolate if they stick with their employer for a while.

  5. Hello Frugal Professor. When you transferred money in and out of your 401K to IRA”s , I’m guessing the accounts had to be liquidated first and then transferred? If so did you accept market returns leading up the the liquidation? Or, did you “lock in your gains” and transfer the assets into less volatile funds such as a Stable value fund and then process your rollover? I”m in the process of leaving my job. My current 401K has a wrap fee of 15 basis points. The money is invested in a SP 500 index fund with a 3 basis point expense ratio. I hate fees. I’m looking at rolling my 401K over to Vanguard. I’m thinking of locking in my gains and transferring my money to a Wells Fargo Stable Value fund in my 401K first, liquidating, and then rolling the cash to Vangaurd. The money would be invested in VTSMX at Vanguard. Would that be “market timing”? Yes,I think so…I may be overthinking all this. This may be a case of loss aversion bias. I think the downside risk of leaving the money in a SP500 index fund is greater than the upside potential in the week or two the rollover is taking place. There are no transfer restrictions in these funds in my 401K. I’m just curious how you viewed your rollovers and the risk one takes in having money out of the market while the rollover is taking place.
    Thank You.

    • I’ve rolled over a few 401k’s in my day. I’m not an expert in this area, but I’m almost positive that my positions were liquidated and “out of the market” for a couple of days for each rollover.

      I would advise against market timing. Simply own the market for decades and you’ll be fine. I wouldn’t worry too much about being out of the market for a couple of days.


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