u/InternetUser007

Before I start to list them, I know people are going to say "the Wealth Multiplier is just to illustrate the power of compounding" or "the Wealth Multiplier is just to get people excited about investing". And yes, I acknowledge those statements. However, correcting the Wealth Multiplier to be more accurate/representative would not reduce those points. We can strive for accuracy while maintaining the illustration.

That being said, here are my complaints:

1. They use monthly compounding instead of annual compounding, and they do not explicitly state this. It turns the stated 10% return into an annualized 10.47% return, even though they say on their website the RoR is 10% annualized. As we know, an extra ~0.50% of growth can massively improve returns, especially over 45 years. Here is a calculator showing they are using monthly compounding to achieve the 88.35 number starting at 20yo. Changing to 10% "annual" compounding brings that number down to 72.89X, a 17.5% reduction.

2. For their "Monthly Savings to Reach $1 Million at 65", they (A) set contributions to be at the end of the month, and (B) Round the dollar amount to the nearest dollar (which means they occasionally round down) when technically they should round UP all numbers to the nearest dollar. Since they don't, there are a few numbers that don't actually hit $1M under their calculation criteria.

3. Their stated reasons for reducing Lifetime Returns by 0.1%/year are: "This decrease in returns reflects a more diversified portfolio including risk-off assets such as bonds". But instead of reducing annual returns at given ages (like what might happen with a Target Date funds as they start to shift more towards bonds when X years from retirement), they reduce Lifetime returns. It feels like the criteria were chosen to make the Wealth Multiplier look more dramatically different from one year to the next than reality would be due to the compounding effect of a missed year of growth/contributions AND a reduction in Lifetime RoR. If a 20yo does use a more diversified portfolio with more bonds as they approach retirement, their non-bond years would have to have a higher than 10.5% annualized RoR, which starts to feel outside of the bounds of what most people recommend considering for a long-term-RoR.

Overall, I recognize these are small quibbles. But I do feel like (1) should be explicitly called out in their FAQs stating that their compounding annualized RoR is 10.47%, they should correct (2) to be more accurate by rounding up instead of using simple rounding, and for (3), they could make the whole thing more accurate by adjusting their assumptions/calculations instead of doing a simple lifetime returns.

Let me know your thoughts. I know it looks like I am taking it too seriously, and that's okay.