Even if you’ve never heard the term selection bias, you likely already have a grasp of what it means. It’s a staple of our current culture and social media use. People love to post pictures from their great vacation or fancy restaurant meal, but rarely do you see the bill. Cute kids and sleeping dogs are also more fun to share than their crying and barking alter egos. This can easily lead to the idea that other people are living some perfect life, void of the challenges that we all face. Therein lies the bias. You only see the selected information instead of the full data set.
2020 was our first full year in retirement and everything went mostly according to plan. Ho hum, just another year in the books. I’m kidding, obviously. Instead, our resolve was tested, both mentally and financially. We learned way more than we ever wanted to know about coronaviruses and how they spread. And we received a stark reminder of all of the things that we normally take for granted, like freedom of movement.
In the financial world, front-loading means to invest a large sum early instead of spacing it out over time. (Not to be confused with a front-end load, which is a fee charged by some mutual funds that I would never invest in.) For example, I could front-load my IRA contributions by investing the $6000 maximum in January each year as opposed to contributing $500 per month. Or I could front-load my 401k by contributing more than $1583 per month, reaching the $19,000 yearly maximum before the end of December.
Which would you rather have: $1,000,000 or $.01 that doubles everyday for a month? It seems like a silly question, right? The obvious answer is to take the cool million. A penny is nothing! But that’s the wrong choice. Your $.01 is only $.02 on day 2 and $163.84 on day 15, but by the time day 30 rolls around, you’re holding $5,368,709.12. That’s the power of compound growth in a nutshell.