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If you invest $10,000 per year and earn a 7% annual rate of return, you can accumulate $1 million in a little under 31 years.
If instead you invest $20,000 per year and earn 7% returns, you can reach $1 million in just over 22 years.
That’s nearly nine years sooner. Just from saving an extra $10,000 per year. Or $833 per month. Or $192 per week. Or $27 per day.
Let’s check out how long it takes to save $1 million based on some other yearly investment amounts.
Moving from $10k to $20k allows you to reach $1 million almost nine years sooner. Moving from $20k to $30k chops off another four and a half years.
If you can save and invest $60k per year, you can go from $0 to $1 million in just over 11 years. Not bad.
But what if you only earn 5% annual returns? Here’s what that chart looks like:
By investing $10k per year at a 5% rate of return, it will take over 36 years to accumulate $1 million. By bumping this number up to $20k per year, you can reach $1 million 11 years sooner.
But what if you only earn 3% annual returns? Here’s that chart:
By investing $10k per year at a 3% annual return, it would take over 46 years to save $1 million.
These three charts illustrate an important idea: the less you invest per year, the more you rely on investment returns to help you reach $1 million.
Notice that by investing $60k per year at a 7% return, you can hit $1 million in 11.4 years. Even when you reduce that annual return to 3%, you can still hit $1 million in 13.7 years. The amount you invest each year is so high that sub-par investment returns barely slow you down.
Check out the difference in the time it takes to reach $1 million based on different annual investment amounts and returns:
Notice how the difference in the time it takes to reach $1 million based on 3% and 7% annual returns becomes smaller and smaller as you increase the amount you invest each year.
If you only save and invest $10k per year, the difference between earning 3% and 7% annual returns leads to a 16-year difference in the time it takes to reach $1 million.
On the other hand, if you save and invest $50k or more per year, the difference between 3% and 7% annual returns causes less than a 3-year difference in the time it takes to reach $1 million.
In the U.S., the stock market has historically delivered 7% average annual returns to investors after taxes and inflation. Unfortunately, nobody knows how markets will perform over the coming decades. Perhaps markets will continue to deliver 7% returns. Or perhaps only 3%.
For those who only save a small amount each year, investment returns will have a massive impact on the time it takes them to reach their financial goals, whether that number is $1 million or not. They’ll be like a tiny sailboat in a large ocean. Perhaps strong winds will propel them forward, but these winds are not guaranteed.
For those who are able to save a significant portion of their income each year, investment returns will have a much smaller impact on the time it takes them to reach their goals. They’ll be like a cruise ship. Whether or not strong winds come, they’ll keep steadily cruising along.
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