Plenty of people remain on the stock market's sidelines for their entire lives, certain that investing is not worth the trouble.
Big mistake.
See, even the smallest amount of seed money and/or regular, modest investments in stocks can grow into a sizable sum over the course of several years. The psychological struggle is usually about the slow start to building investment-driven wealth. Things only really start to cook during the latter stages of your growth timeline.
Get rich slowly
As the old adage goes, a picture is worth a thousand words. Take a look at the image below, which shows the growth of $50,000 returning the stock market's average growth of 10% per year over the course of 25 years. At the end of just two and a half decades, that $50,000 sum has grown into a nest egg of $541,735. That's more than 10 times your original investment!
Data source: Calculator.net. Chart by author.
There are two footnotes worth highlighting here.
- First, the marketwide benchmark in question -- the S&P 500 (^GSPC 1.02%) -- might average an annual return of 10%, but its actual gain in any given year could be dramatically different. Your growth won't take shape in a straight line; bear in mind that you could be looking to retire at a temporary low point for the market.
- Second, the growth assumption above doesn't factor in taxes as your portfolio grows. If this money is held outside of a tax-deferring IRA, your actual net gains might be lower.
Even so, what a result!
But what if you don't have $50,000 to start with right now or 25 years until you retire? That's OK. While you might not be able to reach the half-million-dollar mark, you can still do pretty well for yourself by doing something that's realistic for most folks.
For instance, let's say you can scrape together $2,500 per year for 20 years. Using the same assumptions about market-based returns within an IRA we were using above, you'd end that 20-year period with more than $157,000 after putting in just $50,000 worth of cash. After an additional five years' worth of growth (even without adding any more new money to the account), that stash would be in the neighborhood of $253,000.
Data source: Calculator.net. Chart by author.
Oh, and if you did want to continue adding $2,500 to the account for the last five years of that 25-year span, you'd end up with $270,454 when you were done growing your nest egg.
Don't sweat the slow start
These are only hypothetical models, of course, and aren't necessarily representative of your particular situation. You might have less time or less money to work with. You may have more time or more money. That's not the point. The point is, you can do a lot with the little. The key is using all the time you have left to your full advantage.
This might help drive that point home: In both of the cases above, about half of the net investment gains came in just the last six years of the 25-year time frame. It took that long to start earning some serious money on the portfolio's previous cumulative gains. Once the account started driving typical market returns on its past gains, though, its forward progress became highly exponential. It can for you, too.
Bottom line? Just get started today, no matter how little you think you have to start with.
