Tag Archives: compound interest

How Much Will Your Investment Be Worth?

One of the open questions I have re: investing is what – realistically – my investments will be worth after X # of years. Of course, one can estimate 3% annual return on the S&P 500 to be “conservative” and 10% to be the opposite, but in reality, what is the likely average annual return of the stock market?

While there’s no way to predict the future, lucky for us, there is a way to look at historical data to understand how we’d answer this question if we were to begin investing, say, in 1980.

According to this calculator – The S&P 500 Dividends Reinvested – we can find out that answer:

Scenerios

  • We started investing in 1990, and stopped in 2010, giving us 20 years of investment.
    • Total S&P 500 Price Return: 256.374% (inflation adjusted: 118%)
    • Annualize S&P 500 Price Return: 6.6% (inflation adjusted: 3.974%)
    • S&P 500 Return, Dividends Reinvested: 437.278% (inflation adjusted: 228%)
    • Annualized S&P 500 Return, Dividends Reinvested: 8.770% (inflation adjusted: 6.13%)
  • We started investing in 1984, and stopped in 2014, giving us 30 years of investment.
    • Total S&P 500 Price Return: 1094.274% (inflation adjusted: 427%)
    • Annualize S&P 500 Price Return: 8.6% (inflation adjusted: 5.7%)
    • S&P 500 Return, Dividends Reinvested: 2299% (inflation adjusted: 960%)
    • Annualized S&P 500 Return, Dividends Reinvested: 11.175% (inflation adjusted: 8.19%)
  • We started investing in 1974, and stopped in 2014, giving us 40 years of investment.
    • Total S&P 500 Price Return: 2829% (inflation adjusted: 538%)
    • Annualize S&P 500 Price Return: 8.8% (inflation adjusted: 4.7%)
    • S&P 500 Return, Dividends Reinvested: 1204% (inflation adjusted: 1963%)
    • Annualized S&P 500 Return, Dividends Reinvested: 12.049% (inflation adjusted: 7.8%)
  • We started investing in 1964, and stopped in 2014, giving us 40 years of investment.
    • Total S&P 500 Price Return: 2239% (inflation adjusted: 206%)
    • Annualize S&P 500 Price Return: 6.5% (inflation adjusted: 2.2%)
    • S&P 500 Return, Dividends Reinvested: 10367% (inflation adjusted: 1270%)
    • Annualized S&P 500 Return, Dividends Reinvested: 8.748% (inflation adjusted: 5.3%)
  • We started investing in 1999, and stopped in 2014, giving us 15 years of investment.
    • Total S&P 500 Price Return: 37.5% (inflation adjusted: -2.845%)
    • Annualize S&P 500 Price Return: 2.1% (inflation adjusted: -.192%)
    • S&P 500 Return, Dividends Reinvested: 81% (inflation adjusted: 28%)
    • Annualized S&P 500 Return, Dividends Reinvested: 4% (inflation adjusted: 1.6%)

Well, what this shows us is that generally investing in the S&P index over the long term works out fairly well. After inflation with dividend reinvestments 5% is a reasonable conservative estimate annual return for a long-term investment. However, if you started investing in 1999 and have invested for 15 years, you’d pretty much be at break even at this point (assuming you put all your money in up front.)

I’m still looking for a more robust calculator that enables one to input annual investments and see what these would have turned out with historic data. Do you know where one exists or care to build one I can use? 🙂

 

Turning 28 and Getting Serious About Investing

I don’t remember the exact day I opened my first Vanguard account, but I do remember the feeling that came with moving $3000 from my just-expired CD (then at a 3.5% or something renewable interest rate) into a Roth IRA. There was some thrill of taking a risk of earning more than 3.5%, and feeling proud that I was acting like a grown up and putting $3000 (a huge chunk of my savings at the time) into an account I couldn’t touch for another 45 years.

It was sometime around 2007 at this point. My yearly income was about $25,000, and I had $15,000 in savings which included the cash my dad gave me to buy my first car and money from a lawsuit when I was young. I could have spent $15k on a car, but instead I spent $7k on a used car and put the rest into savings and CDs. Investing from 2006 to 2011 hasn’t been a remarkably inspiring experience. I’m not surprised that the Millennial Generation doesn’t trust the market, and is afraid of investing. I’m trying to fight the urge to take my savings out of the banks and stock market and stuff my cash in a pillow.

A year or so after opening my Vanguard account, I started to test the waters of more significant investing. I somehow maxed out my Roth IRA that year, bought a taxable Index fund at Vanguard, and started researching other ways to invest any extra income. On 12/31/2007, I had $9,189.07 in all of my Vanguard accounts, and $7000 in a CD. That was the entirety of my investment accounts 4 years ago. At this time, I was paying $1000 a month in rent for a studio apartment, and making $35k a year. I opened my Sharebuilder account in 2008. According to my year-end account statements in 2008, I had $1542.28 in equities and $50.48 in a money market fund, totaling $1,542.28. That year, I earned a whopping $22.13 in dividends.

Read on to see how I’ve grown my investment accounts from $15k in 2007 to $110k in 2011. Continue reading