2 min read
Here’s an interesting thought experiment: How much would you have needed to invest since 2000 to have become a millionaire by the start of 2018?
Let’s assume you invested all of your savings in an S&P 500 index fund. Here are the S&P 500 annual returns since 2000:
Assuming you invest a lump sum amount at the start of each year, it turns out that you would have needed to invest $22,325 each year in the S&P 500 to accumulate $1 million by the start of 2018:
What if you instead started investing at the start of 2001?
It turns out you would have needed to invest $23,674 in the S&P 500 at the start of each year in order to accumulate $1 million by the start of 2018:
We can extend this thought exercise to all starting years from 2000 to 2010:
Unsurprisingly, the later you started, the more you needed to contribute each year to achieve millionaire status by the start of 2018.
This chart represents these numbers in a slightly different way:
Here is how much of your final $1 million would have been come from contributions vs. investment returns, based on your starting year:
For someone who started investing in 2000, 40% of their final $1 million would have come from contributions. Contrast that with someone who started investing in 2010, who would have had 52% of their final $1 million come from contributions.
Assumptions used in this analysis:
-All contributions were made into an S&P 500 index fund
-Contributions were made in a lump sum manner at the start of each year
-S&P 500 Annual returns come from this data source
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
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His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free, has no trading or maintenance fees, and even allows him to set up automated target-allocated investments.
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