A chart that has fooled a lot of people
You have seen this chart online: ten thousand in principal, 15% a year, and thirty years later it is 6.62 million, the curve shooting up like a rocket.
The chart is real. The arithmetic is correct. But these charts all share one property — they only handle wishful thinking; they don’t handle reality.
They never tell you three things:
- Somewhere in the middle you will stop contributing (job loss, illness, marriage, a family emergency);
- Somewhere in the middle you will hit a drawdown (not “a −10% year”, but a month where a third of the account disappears);
- Your return rate will decay as capital grows (the return you can get on small money does not survive on big money).
In this article I build a real projection table from beginning to end, then put those three things back in one by one, and see what is left.
This is not a return promise and not a strategy recommendation. It is a pure arithmetic exercise: given contributions and a return rate, what does time give you?
1. The assumptions: only four rows
Projections are only as honest as their assumptions, so let me nail them down:
| Item | Setting |
|---|---|
| Initial principal | $10,000 |
| Monthly contribution | $600 / $800 / $1,000, starting from month one |
| Gains | Left in the account and reinvested, not withdrawn |
| Horizon | 10 years, 120 months, compounded monthly |
| Costs and taxes | Already inside the return rate, not deducted separately (this is optimistic, and I will come back to it) |
Three return scenarios, each with a source — these are not numbers I invented:
-
Conservative: 0.75%/month = 9.4%/year This is the CBOE PUT Index (1986–2023, 37 years): 9.40% annualized, max drawdown −32.7%. It is the longest and most complete record of the “options selling” business anywhere.
-
Neutral: 1.5%/month = 19.6%/year Roughly where a Wheel backtest (11.2%/year) lands after adding a small-account premium. The “did well but no miracle” zone.
-
Optimistic: 2.4%/month = 32.9%/year Achievable with a small account, only high-IV small caps, concentrated positions, and a good year. But remember this sentence: this is the peak of the return range, not the floor.
2. The main table: eight hundred a month, three ten-year paths
Start with the middle case — $800 a month.
| Year | Total contributed | Conservative 0.75%/mo | Neutral 1.5%/mo | Optimistic 2.4%/mo |
|---|---|---|---|---|
| 1 | $19,600 | $20,944 | $22,389 | $24,267 |
| 2 | $29,200 | $32,915 | $37,202 | $43,230 |
| 3 | $38,800 | $46,009 | $54,912 | $68,437 |
| 4 | $48,400 | $60,331 | $76,087 | $101,942 |
| 5 | $58,000 | $75,996 | $101,404 | $146,479 |
| 6 | $67,600 | $93,131 | $131,673 | $205,678 |
| 7 | $77,200 | $111,874 | $167,864 | $284,368 |
| 8 | $86,800 | $132,374 | $211,134 | $388,964 |
| 9 | $96,400 | $154,798 | $262,869 | $527,996 |
| 10 | $106,000 | $179,325 | $324,724 | $712,801 |
| — | Net gain | +$73,325 | +$218,724 | +$606,801 |
Over ten years you put in $106,000 in total ($10,000 of principal plus $96,000 of salary).
Conservative: $179,325 after ten years. Neutral: $324,724. Optimistic: $712,801.
One identical habit, three different lives. The only difference is two decimal places in a monthly return.
3. Change the contribution, change the world
Now the contribution dimension. Ten-year terminal values:
| Monthly | Ten-year total | Conservative 0.75% | Neutral 1.5% | Optimistic 2.4% |
|---|---|---|---|---|
| $600 | $82,000 | $140,622 | $258,466 | $577,647 |
| $800 | $106,000 | $179,325 | $324,724 | $712,801 |
| $1,000 | $130,000 | $218,028 | $390,981 | $847,955 |
The most honest thing about this table is that it breaks the “effortless wealth” illusion:
Raise your contribution from $600 to $1,000 (66% more money) and the neutral case goes from $258k to $391k (51% more). Double your return from 0.75% to 1.5% and the neutral case goes from $179k to $325k (81% more).
The return rate looks like it wins. But hold on — the return rate is given to you by the market. The contribution is decided by you. That distinction is the most important line in this article, and we settle the account in section 9.
4. First uncomfortable finding: the compounding crossover comes later than you think
I define the compounding crossover as the first year in which the account’s investment gain exceeds that year’s contributions. Past that year, the account starts feeding itself.
At $800 a month ($9,600 a year):
| Return | Crossover | Account size that year |
|---|---|---|
| 0.75%/month | Year 8 | About $132k |
| 1.5%/month | Year 4 | About $76k |
| 2.4%/month | Year 3 | About $68k |
Look at that — in the most conservative scenario, your account does not earn more than you contribute until year eight.
For the first seven years it is just a fancy piggy bank. You open it at year end and the extra money is less than a few extra days of work would have paid.
This phase is the most punishing, because it gives you no positive feedback at all: you pick tickers, watch the Greeks, manage positions, and the money you “made” looks meaningless. Most people do not fail on the return rate. They die in these seven years.
5. Second uncomfortable finding: more than half the money is what you later put in
Using the neutral case (1.5%/month, $800/month), look at what the balance is made of:
| Year | Account value | Principal share | Gain share |
|---|---|---|---|
| 1 | $22,389 | 87.5% | 12.5% |
| 3 | $54,912 | 70.7% | 29.3% |
| 5 | $101,404 | 57.2% | 42.8% |
| 7 | $167,864 | 46.0% | 54.0% |
| 10 | $324,724 | 32.6% | 67.4% |
For the first six years, more than half the money in the account is money you put in yourself. Not until year seven does the gain exceed the principal.
By year ten, gains are 67% of the value. That sounds great — but read that sentence backwards: those 67% contain ten years of you never missing a month.
6. Third uncomfortable finding: one drawdown cancels ten years of salary
Now take the filter off. Assume the neutral case runs smoothly and year 5 brings a −25% drawdown (not a black swan — just an ordinary bear market).
| Year | No drawdown | Year 5 at −25% | Difference |
|---|---|---|---|
| 5 | $101,404 | $76,053 | −$25,351 |
| 6 | $131,673 | $101,363 | −$30,310 |
| 10 | $324,724 | $262,786 | −$61,938 |
One −25% event costs $61,938 of terminal value.
And the total salary contributed to this account over ten years is only $96,000 — one drawdown eats 6.5 years of your salary.
Why? Because a drawdown is not a number. It is time flowing backwards:
- Going from 100 down to 75 requires a 33% gain to break even;
- At 1.5%/month, a 33% gain takes 19 months;
- The 25% loss took one month; repairing it takes a year and a half.
Stack one more on top: assume a −20% in year 3 and a −25% in year 7. The neutral case falls from $324,724 to $224,230.
Two drawdowns wipe out $100k — more than all the salary you contributed in ten years ($96,000).
This is the sentence I keep repeating: a drawdown does not deduct from your return rate. It deducts from your time. And time is the only raw material compounding has.
7. The real price of skipping a year: $9,600, or $30,477?
Most people cost out a skipped year like this: I invest $9,600 less this year, so in ten years I have $9,600 less. Wrong.
Still the neutral case (1.5%/month, $800/month). Assume year 4 passes with zero contributions (unemployment, illness, a family matter — pick any), and you resume in year 5:
| Ten-year value | |
|---|---|
| Contribute every month | $324,724 |
| Skip 12 months in year 4 | $294,247 |
| Shortfall | −$30,477 |
You put in $9,600 less and end up with $30,477 less. A 3.2x multiplier.
Because that $9,600 did not disappear in year ten — it was multiplied by compounding in years 7, 8, 9 and 10. What you owe is not an amount of money. It is a stretch of time that could have grown.
This is why I keep saying: the hardest part of a compounding system is never picking the right ticker. It is still contributing when you don’t feel like it. And it is why the monthly amount must be set at a level where three months of unemployment does not panic you.
Better to put in $600 a month for ten years than $1,200 a month for two years and then stop.
8. Take the whole filter off: what the real curve looks like
Every table so far has one thing in common: the return rate never changes. The real world does not look like that.
The real curve is piecewise:
- Years 1–3: capital is small ($10k–$70k), you can concentrate in high-IV small caps, and 2%+ a month is possible;
- Years 4–6: capital is $100k–$200k, and the same names stop fitting — concentration limits, liquidity limits, one put is 15% of the account. The return rate must decay toward 1.5%;
- Years 7–10: capital above $200k. Either you rotate into large caps and index options (return drops to about 1%), or you keep gambling on small caps (and then you meet the drawdowns from section 6).
On that decay path (2.4% → 1.5% → 1.0%), plus two drawdowns (year 3 at −20%, year 7 at −25%), $800 a month lands at:
| Scenario | Ten-year value | Total in | Net gain |
|---|---|---|---|
| Ideal (2.4% flat for ten years) | $712,801 | $106,000 | +$606,801 |
| Decaying (2.4 → 1.5 → 1.0) | $298,533 | $106,000 | +$192,533 |
| Decaying + two drawdowns (my bet) | $204,228 | $106,000 | +$98,228 |
From $713k down to $204k. That is the price of the filter.
But look at the last column: a net gain of $98,228.
Put in $106k over ten years, walk away with $204k. Adjusted for inflation, that is still very nearly a doubled asset — and it was earned while adding money every year and taking two heavy hits along the way.
That number is not sexy, but it is a number that survives.
9. Return rate or contribution — which one do you push?
Back to the question from section 3. Put the two extremes side by side:
| Combination | Ten-year value |
|---|---|
| 2.4%/month + $600/month | $577,647 |
| 1.2%/month + $1,200/month | $360,314 |
The high-return version wins — even with half the contributions.
So is the answer “chase a high return rate”? No. Because these two variables are fundamentally different:
- The return rate is a function of environment and skill. It decays as capital grows, it vanishes when the market cools, it goes to zero after one drawdown. You cannot command it.
- The contribution is a function of habit. Only two things affect it: whether you have income, and whether you have discipline.
The return rate is a multiplier. The contribution is the base. Multipliers collapse; bases do not.
The rational choice is the opposite of what the table suggests: first get the return rate to a sustainable upper-middle level (around 1.5%), then push the contribution to the highest level you can sustain.
Because 32.9% a year written on paper is called compounding; written on an account statement it is called volatility. Whereas the $800 that arrives every month is the only variable in this entire article that does not depend on the market.
10. Three things to take away
If you want to run a projection like this yourself, copy these three lines:
1. Find your crossover before you talk about returns. At 1.5%/month, your account does not feed itself until year 4. Before that, everything you do is just “saving plus practice”. Accept that framing and you will last long enough.
2. Set the monthly amount where three months of unemployment does not panic you. The real cost of skipping a year is more than 3x what you skipped. Contribute less, never skip — that is the one non-negotiable rule in this system.
3. Treat a drawdown as a time cost, not a money cost. A 25% loss needs a 33% gain to recover, which at 1.5%/month is 19 months. So the goal of your risk control is not “higher returns” — it is “fewer repairs needed”. Leverage caps, position concentration limits, assignment deadlines: all of them exist for this one purpose.
One last thought, and it may not be flattering.
The word “compounding” gets used so much that it starts to sound like a privilege. In practice it is closer to manual labour: every month you convert part of your work into a certificate, then wait patiently for it to become two certificates.
Ten years later you open the account, and most of the number you see was not given to you by the market. You typed it in yourself, one month at a time.
Math will not lie to you. But math will not persist for you either.
Trading Insights #011 · To be continued