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When Your Portfolio Makes More Money Than You

hard not to smile

I was twelve, maybe thirteen years old. Our elderly neighbors could no longer keep up with the flower gardens and shrubbery surrounding their country home, and I somehow found myself employed.

The job paid $2 an hour. I was small enough to easily squeeze in between and underneath the flora to pull weeds and I knew how to work a hose to keep everything green.

A few hours of work earned me enough to buy a stack of wax packs — that’s how football cards were packaged back in the day — a few weeks’ worth could get me a new Lego set!

I had no portfolio to speak of. I did have a Joe Montana rookie card (I still have it, in fact) and a growing collection of Space Lego. I was trading time for money for goods and I loved it.


When Your Portfolio Makes More Money Than You


Fast forward nearly two decades.

At this point, I’m in my early thirties. I still have no portfolio to speak of. The Montana card and Lego are in storage, but now I’m making more than $2 a minute. I’m trading time for money and loving it!

I’m finally an anesthesiologist, cheerfully getting up early, working late into the night, and doing the things I trained for so long to be able to do.

I start a few small investment accounts, but 99% of the progress in growing my net worth comes from my new job. In fact, in those early years of my career (think 2007 to 2009), those investments were only losing money while I more than made up for it by working my tail off.

It was disheartening to see those early mutual fund investments plummet, but I was familiar enough with the history of the stock market to know that in all likelihood, this too would pass.

Pass, it did.


Fast forward another decade.

I’ve heard that the first $1,000,000 is the hardest to acquire. Of course, it is. You have to work for it. I recall passing that milestone roughly seven years into my anesthesia career.

When you join the two-comma club, things happen more quickly. Your money is now working harder than ever, boosting your net worth more with each passing year while your input from the money you earn probably hasn’t changed all that much.

The second million came in less than half the time of that first million dollars. By the time I left my job and retired from medicine, that number had doubled again.

I wasn’t working any harder; in fact, I was working less as a part-timer the last couple of year. Luck certainly played a role; the market was on a historic bull run. The Rule of 72 playing out right before my eyes.

If I hadn’t been saving diligently all along, though, I wouldn’t have had the funds to benefit from the stellar returns that the stock market has given us.



Passive “Income”


Usually, when I talk about passive income, I put the word “passive” in quotes. The “passive” income that is bantered about online almost always has an active component, particularly early on, a fact that Passive Income MD readily admits.

In this case, the income I’m talking about is truly passive, but “income” isn’t the best term for the growth of an investment portfolio.

Essentially, I’m talking about the growth in your net worth that comes with each passing year that your portfolio gains value. Most of it won’t exactly be “income,” per se, as that term implies that the growth is realized as taxable proceeds that you’re free to spend or reinvest.

The “income” I’m referring to in this post is the total return that your portfolio gives you in a given year. It’s the amount that the value of your investment portfolio increases not from new contributions, but from the increase in net asset value and reinvestment of any dividends.

Regardless of the nomenclature, truly passive income is a beautiful thing, and that term rolls off the tongue much more smoothly than passive portfolio growth or passive net worth gains.

If you play your cards right, at a certain point in your career, you will find that in some or most years, your portfolio contributes more to your net worth growth than your job does. When that happens, you may start to question why you work as hard as you do.

I certainly did.


hard not to smile
hard not to smile when your money works harder than you


When Will You Reach the Tipping Point?


Since you’re still working in these years, I’ll assume that you’re invested in a reasonably aggressive fashion, i.e. mostly stocks. You may also be investing in real estate or alternatives and I’ll address that potential later on.

Given this assumption, one can expect plenty of volatility. Some years will be much better than others, and in some years, your portfolio will work against you. To me, it makes sense to break it down into years that are great, good, OK, and bad.


Great Years


2019, when this post was originally published, was a great year. The stock market returned around 30%.  Any time you can get 25% or more from your portfolio, I’d call that a great year.

Historically, the U.S. stock market as measured by the Dow Jones Industrial Average (which actually has data going back more than a century) has generated great returns 20% of the time over the last 100 years.

If you are saving and investing $10,000 a year, you only need $40,000 in your portfolio to be out-earned by your investment accounts based on this data.

If you’re a high-income professional, living on half your takehome pay in accordance with my live on half challenge, and investing $100,000 a year, a portfolio of $400,000 could add as much or more to your bottom line than your work does.

The formula is pretty simple. 100 divided by the percentage your portfolio gains equals the multiple of your annual savings that will equal your contribution to your net worth. That sounds like a mouthful, so let’s apply it to some other scenarios.


Good Years


The U.S. Stock market has returned, on average, roughly 10% per year over many decades. I’d call a good year anywhere from that average of about 10% up to 25%.

When your portfolio is 10x the size of your annual contribution (the amount you save and invest from your job), in a good year, your portfolio will contribute at least as much as you. 100/10 = 10.

In a very good year where your portfolio earns 20%, a portfolio of just 5x your annual savings will match your contribution. 100/20 = 5.

Looking at the last 100 years of US stock market returns, 30 of them have been good years.


OK Years


I’ll define an OK year as one in which you see a positive return in your portfolio, but less than 10%. By now, I suspect you can do the math yourself.

If your portfolio earns 4%, you’ll need a portfolio 25x the amount you’re saving and investing annually for the portfolio to work as hard as you at growing your net worth.

Those of you familiar with safe withdrawal rates should recognize these numbers. We’re not measuring the exact same thing, but the equation is the same. 100/4 = 25. When discussing withdrawal rates, we’re solving for how much you need to accumulate to meet your retirement spending needs rather than matching your annual savings, but the math is identical.

We’ve encountered OK years 18 times in the last century.


Bad Years


If you’re invested aggressively and the market is down, your portfolio is going to work against you in bad years. 32 of the last 100 years have been bad years. No matter how large the portfolio, it won’t do you any favors with a negative return.

Well, you could do some tax loss harvesting, but that’s a different article altogether.


The Role of Diversification


Few people have 100% of their nest egg in stocks, and no one I know is 100% invested in the 30 large cap stocks that make up the Dow Jones Index. I used it simply because it’s an index with more than a century of data.

If you had followed that strategy, one in every five years was a great year with gains of 25% or more. However, nearly a third of the time, your investments would have lost money.

Adding uncorrelated or inversely correlated asset classes has the effect of decreasing the frequency of both the great years and the bad years. That means more OK and good years, and most people would consider that a good thing.

Fixed income instruments such as bonds and annuities tend to give OK returns most of the time. In some cases, you’ll know exactly what you’re getting in advance.

Real estate runs the gamut, but in most cases, unleveraged real estate can be expected to give you high single-digit to low double-digit returns.

A diversified portfolio that includes multiple asset classes will increase the odds that your sizable portfolio out-earns you more often than not. Your floor (poorest portfolio performance) will be raised while your ceiling is lowered a bit, as well.


The Implications of a Hard-Working Portfolio


What does it mean when your investments make your net worth grow more than you can most years?

It’s both a wonderful and deflating feeling. On one hand, you realize that you could likely get by just fine without the job. On the other hand, it can make you feel like you’re spinning your wheels at work.

You put in all those hours and go the extra mile only to have the contributions you can make to your nest egg pale in comparison to the growth of the nest egg itself. It’s a first-world problem of the highest order, but it’s one that may have you questioning the role of paid work in your life going forward.

For example, let’s say you’re comfortably financially independent with 30x your anticipated annual retirement spending of $100,000 a year saved up and invested.

You accumulated this $3 million portfolio as a super-saver putting aside $100,000 a year, on average, which you’re still doing now.

In a pretty good year, the market gains 10% and your nest egg contributes $300,000 whereas your full-time job adds 1/3 of that amount.

In a very good year, the market gains 20%. Your portfolio is up $600,000 without you lifting a finger. In a great year… well, you get the idea.

You realize that your future net worth depends far more on market returns than whether or not you’re working. There are many reasons to work that have nothing to do with money, but at some point, you realize that the money you earn doesn’t impact your financial future much anymore.



Has Your Portfolio Made More Money Than You?


It’s remarkable when you first realize that your investment portfolio has out-earned you in a given year. How likely is that to happen? Let’s summarize what we’ve learned based on the historical performance of U.S. stocks.


  • If your portfolio is 4x the size of your annual contributions, it would have happened once every five years.
  • If your portfolio is 10x the size of your annual contributions, it would have happened half of the time (50 of the last 100 years).
  • No matter how big your portfolio is, a 100% stock allocation has lost money nearly one third of the time.


Obviously, past performance is not predictive of future returns, and a diversified portfolio will alter the equation to some extent.

The take-home message is that at some point, you’ll have a hard time keeping up with the work ethic that your investment portfolio seems to have.

If you want your money to work for you, put in the work yourself, save a substantial chunk of what you earn, build a diversified portfolio, and reap the benefits.

Eventually, your hard work will pay off, and you won’t have to work so hard to grow your net worth. Your days of pulling weeds and filling the watering can are over. You can sit back and watch your garden grow.

Compound interest is a wonderful thing.



Has your investment portfolio out-earned you yet? Does it happen more often than not? Does recognition of that fact change how you feel about your career? Share your thoughts in the comment box below!

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27 thoughts on “When Your Portfolio Makes More Money Than You”

  1. Pingback: The Monthly Checkout: Belated Thanksgiving Edition - The Physician Philosopher
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. This happened to me last year for the first time (and this year is shaping up to be the same.)
    It’s a strange feeling when you see the figures – I was almost numb, because I didn’t believe it could happen to me.
    Anyway, guess who’s going part-time next year??!?

  4. When your portfolio is earning dividends & interest in large quantities, your tax bill increases significantly. You can pay those taxes via quarterly estimated payments or (if you are working) increased paycheck withholding. I choose the latter to give me more flexibility. However, that has the effect of reducing my take-home pay. I am faced with a situation that in a few years, my take-home pay will be zero because I am diverting all of it to pay taxes on my dividends and interest. In the back of my mind is the knowledge that if I stopped working, my marginal tax rate would come down. Today, my take-home pay is less than it was 25 years ago in nominal dollars. In real dollars, my take-home pay is much less compared to 25 years ago. It’s a strange situation. It’s almost as if I can’t afford to keep working.

  5. This happened for the first time to me this year. High six figures in total return from capital gains and dividends. It is difficult to comprehend where to go from there. It is a far cry from my student days when I braved a snowstorm in freezing weather in order to earn 5$ cash for participating in a psychology test. I remember it as if it were yesterday 😉

  6. This was enchanting to read, like the promise of a future beyond my imagination. At this point, hovering just at our first million, I can attest it has truly been the hardest to make. This makes me ruminate over all our financial mistakes: living in CA, having a pool and a yard, having a home with an old sewer line…

    I dream of a lower cost of living or a state with no income tax. Since my husband is happy here, it seems we are going to just keep trucking where we are. For now, quality of life wins…

  7. This does not happen in my field until you are quite old. Most of engineering degrees have some compensation in company stocks and the earnings are usually higher than a diversified stock portfolio.

    Sure if I compare my portfolio gains to year 1 of my career then yes. But the crossover point between current years passive vs current year arned is hard

  8. 1) The S and P is up 24.5 % YTD. However all except 5% is just making up for the 19.4 % Xmas market drop. So really not so great a year even though, strictly speaking, its up a lot.

    2) Unless you are 100% in stocks, the “market” rising 10% is NOT going to lead to a 10% rise in your assets. For me, with ~ 60/40 allocation, my portfolio gains or loses almost exactly half of what the S and P does.

    3) While the gain from your assets may be contributing more than your salary, if you weren’t working you would be needing to spend from your portfolio to meet you expenses, thus reducing your “gain” by the amount of your salary. So salary may be adding less, but it may still be contributing significantly to your portfolio.

    • Thank you for pointing out very salient facts that the stock market pundits rarely mention !! Market is not up 24% over the 2018 high so if you are a buy and hold investor your gains this year are significantly less.

    • 1) True, but much of that Xmas drop was giving up gains from earlier in the year. Going back to January 2018, we’re up about 14% in 22 months. We should expect that sort of volatility from the stock market.

      2) Of course. I tried to make it very clear that I was using the DJI and that the assumption is based on an aggressive stock-heavy portfolio. YMMV, but the equation remains the same. 100/your return = multiple of annual savings needed to have your portfolio returns match your contributions from work.

      3) Great point. Just working enough to cover expenses ensures you won’t have to touch the portfolio.


  9. I’m not there yet, but the growth this year has been staggering. It’s definitely the most “free” money I’ve made in a year.

  10. I have had several years where my portfolio gained more than what I made. However there has been a year where I lost as much as I made ?

  11. I’m not even close. Never have been. For most, this point is well beyond FI and you really won’t hit it until you retire or at least cut back severely.

    In fact, if you get there, it can be argued that you drastically oversaved and could have given more away, spent more, or retired earlier.

    • Well, if you didn’t make so much darned money, you’d be close if not there most years. #1stworldproblems.


      • Heheh, touche PoF!

        I enjoyed the article, and these comments are instructive as well.

        It was discouraging indeed to see my investment portfolio drag for the majority of 2019. It did give a “spinning the wheels,” feeling to see my net worth decrease despite my ongoing contributions each month.

        It’s been nice to see my net worth rise as trade tensions fall, but overall 2019 was a good reminder to keep my eye on the horizon, rather than on the day to day.

        — TDD

  12. We had a year where our portfolio made more money than my starting engineering salary. It was a great memory, first seeing the numbers and then realizing what that meant. Compound interest really is like a wave, and it’s a lot more fun to be on the front of that wave.

  13. I think it is going to be great business for all of the bloggers when the pendulum does actually swing the other direction writing about this stuff. I do think it is no coincidence though that the FIRE movement has coincided with one of the greatest bull market in history thanks to the printing of money by our government. Everybody looks like a Rockstar right now, and it doesn’t seem like anybody in the FI community (other than Jim Collins I suppose) has really lost any great percentage of their net worth when it was worth a seven figure sum. Seeing your $500k portfolio cut in half is no big deal, but having your $4M pile cut in half does impact your mental fortitude. That is why I really appreciate Big ERN’s factual explanation to people that it could actually take more than a decade to get back to ground zero when you consider inflation. No fluff there, just facts (not that this post is fluff lol).

    The facts do still bear out though that everything will be fine if you stay the course and have a low 3% or so withdraw rate, but my advice to people who do hit there mark is to start to de-correlate their investments beyond this basic level of support moving forward. Keep your first $3-$5M fully invested per your initial risk tolerance plan, then take the gains past that and diversify into alternative investments, real estate, and other income producing items that buffer you from the volatility.

    • Solid advice. It was interesting to see the reactions and questions from people a year ago when the market lost nearly 20%. A 40% to 50% drop would certainly give us a lot to discuss (and fret about)!


  14. If I may, I would like to offer some encouragement to those who are not high paid professionals. It may have been a bit longer journey, however I find that we have passed this milestone 3 years ago where our portfolio gains have now surpassed our “average” household expenses and even income.

    Yes, the power of compounding is a wonderful thing if you give it enough time and being a super-saver can put you on the wealth building path even on a modest income and lifestyle.

  15. We will have greater accumulation in our investments in 2019, than our income. We have surpassed 10X our gross annual salaries in our portfolio. We plan to work another 16 to 42 months. It’s been so long since we’ve had a down year that I’m afraid to FIRE. Since it has to come eventually, hopefully 2020 is that down 30% year. If I’m going to be down hundreds of thousands of dollars, I hope it’s in a year I’m still working.

    • A nasty sequence of returns can bite you. I was kind of hoping that we would have a bear market and be on the rebound before retiring, but’s that not the way it worked out.

      Congrats on your progress and pending FIRE in the coming years.


  16. Since this will start happening on the good and great years prior to becoming FI it might be a early notification that you can choose more favorable options at work.
    The first time your portfolio outperforms is not the time to give the CEO the finger and cancel the next 6 months of appointments as you run to early retirement.
    It could be a time to evaluate if there are aspects of your job that you can modify or eliminate that will increase your satisfaction at the cost of some money. It might take you a little longer to get to FI but you will enjoy the trip more.
    I think you showed this mathematically with a 4 physicians example in the past!

    This is a great concept. Keep up the good work! I hope you are still enjoying retired life.

  17. I remember having this realization in 2013, my first 25%+ year on the portfolio with a decent amount invested. Its amazing what staying invested and having one of these big years can do for your portfolio.

  18. This is a very important concept. I had an epiphany one day when I realized that the dividends and interest on my taxable account (portfolio not designed for income) was more than my spending. I quit OB soon after this realization. Once your portfolio really starts to grow you will be astounded by the results

  19. I think there are a couple of tipping points that happen when your portfolio grows to 1 million and then 2 million. It is somewhere between this range that growth in net worth starts to result more from the portfolio than the input of new money given most docs income and contributions.

    Of course super savers (50% of income or more) require an even much larger portfolio to have the contribution balance in favor of the portfolio (that’s the situation I find myself in). But I’m really not in a competition with my portfolio anyway. Both methods serve to add to my net worth and in down years my contribution smooths out the volatility some

  20. My portfolio is no where close to that happening, but I do look forward to being there in 5 to 10 years. It’s a powerful image to hold, and certainly provides a good amount of motivation to keep plugging away.

    I think what it really encourages me to do is to find that perfect work life balance so that I am enjoying my time at work and home while being a super saver. Yet, I can completely imagine how I’ll feel when stuff at work annoys me when my portfolio is earning more than I do. I may be singing a different tune when that happens.

    Thanks for the solid reminder!


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