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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.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
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.
His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.
His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.
His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.
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