I love what-if financial scenarios -- where you figure out what would happen if, say, you invested a certain sum regularly over a long period. I've made many charts over the years, in fact, showing various scenarios for articles I've written.
I think I love these tables because they offer the kind of information that served to wake me up, back in my 20s -- and I've been grateful for that wake-up call ever since.
Image source: Getty Images.
Take a gander at the table below. It shows how much money you might amass over time if you sock away $500 per month (that's $6,000 annually) -- or $1,000 per month ($12,000 annually) and you earn an average annual growth rate of 8%.
|
Growing at 8% for |
$6,000 invested annually |
$12,000 invested annually |
|---|---|---|
|
5 years |
$38,016 |
$76,032 |
|
10 years |
$93,873 |
$187,746 |
|
15 years |
$175,946 |
$351,892 |
|
20 years |
$296,538 |
$593,076 |
|
25 years |
$473,726 |
$947,452 |
|
30 years |
$734,075 |
$1,468,150 |
|
35 years |
$1,116,613 |
$2,233,226 |
|
40 years |
$1,678,686 |
$3,357,372 |
Source: Calculations by author.
Why 8%? Well, I know that for building wealth over a long period, it's hard to beat the stock market, and over many decades, the stock market has averaged roughly 10% annual growth. But over your investment period, which might be the next 10 or 30 years, it could average 6% or 13% or something else. So to be a bit conservative, I used 8%.
Clearly, the table shows that you could amass hundreds of thousands of dollars -- or even more than a million dollars -- over 30 years. You might get there faster investing larger sums, too.
To aim to earn roughly the stock market's return, you could invest in a simple, low-fee index fund, such as the Vanguard S&P 500 ETF (VOO -0.57%). It will invest you in 500 of America's biggest and best companies, which make up about 80% of the U.S. stock market's value.
