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Thread: The concept of critical mass

  1. The concept of critical mass

    I've read on here a number of posts commenting about how a certain person's portfolio is close to or has reached "critical mass." I'm curious as to how people define that and what they mean when they use this term.

    I don't think it's equivalent to "FI." I think it's more along the lines of you're at the point where compounding (or just annual returns) have a greater impact on your portfolio than your savings rate.

    In other words, if Investor X is saving ,000 per year, and his portfolio reaches, say, 0,000, an "average year" return of 7% means he's earning ,000 with no action, and thus he has reached "critical mass." Any growth after that and his returns have a greater (average) impact than his savings rate. (I hope to get here someday soon!!)

    What do you call "critical mass?"

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  3. Re: The concept of critical mass

    I had 60c on the dollar from 2000 to 2003. Luckily, I got it all back by early 2005, but it was unnerving.


  4. #3
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    Re: The concept of critical mass

    I had 60c on the dollar from 2000 to 2003. Luckily, I got it all back by early 2005, but it was unnerving.[/QUOTE] Sure, that's an implied "problem," but I guess when I wrote my off-the-cuff definition of this term, that's why I used "average." In a year like 2013, with 30% portfolio returns, a lot of us were probably at "critical mass!" And in other years, your savings can't keep your overall balance stable after a certain point (dependent on your savings rate).


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    Re: The concept of critical mass

    Doesn't mean much to me, and even FI is subject to considerable interpretation, there's no universally right FI either.

    Here's a definition from a well known radio " advisor" who evidently uses the term often, but it's about as vague as I could imagine. Sounds a lot like FI to me, vs another unique metric...
    Critical Mass:

    A state of freedom from worry and anxiety about money due to the accumulation of assets which make it possible to live your life as you choose without working if you prefer not to work or just working because you enjoy your work but don't need the income. Plainly stated, the Land of Critical Mass is a place in which individuals enjoy their own personal financial nirvana. Differentiation between earned income and assets is a fundamental lesson to learn when thinking in terms of critical mass. Earned income does not produce critical mass......critical mass is strictly a function of assets. Webmaster and Business Idea Forum


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    Re: The concept of critical mass

    My definition of critical mass is that my pile of financial resources reaches the point where I don't have to work unless I want to. Obviously, included in critical mass is a phantom value for my platinum plated pine and brass pension.


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    Re: The concept of critical mass

    I guess critical mass for me was when it became clear that the incremental savings I was adding to the pile were largely besides the point.


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    Re: The concept of critical mass

    I've been using it my own mind to define current situation: portfolio growth plus pension and SS spins off more that we have the ability to spend, hence critical mass in that it will outgrow our ability to spend it. After all those years of LBYM dollars still have inherent value that makes us unable to spend it on things that don't mean much to us, which is just about anything material. We're at 2-2.5% WR. I'd say anyone living comfortably (not denying themselves things they really would enjoy) at much less than 3.5% WR to have hit my definition of "critical mass."


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    Re: The concept of critical mass

    I guess critical mass for me was when it became clear that the incremental savings I was adding to the pile were largely besides the point.
    Pretty much what my definition says, only much more succinct!


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    Re: The concept of critical mass

    I am extremely wary of using terms like "critical mass" in connection with my investments. It's self deception to think that a portfolio of any size can achieve the kind of explosive and uncontrolled growth one sees in, for example, a critical mass of U-235. Applying borrowed terms like this to their financial situation gives investors a false sense of confidence that isn't borne out by the facts.


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    Re: The concept of critical mass

    I defined my critical mass as the minimum that I can RE with. So, CM = starting point of FI. E.g, I've reached CM already and evey year I do OMY, it's increasing/enhancing my FI.


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