What If You Had Invested $1,000 Every Year Since Age 18?
The sooner you invest, the more time your portfolio has to compound. For people who started investing at 18, that compounding can translate into generational wealth that offers significant financial flexibility in retirement.
The stock market tends to produce an annualized 8% return and we will use that assumption when presenting calculations. It also assumes you consistently invest $83.33 per month instead of a lump sum investment at some point in the year. Here’s how investing $1,000 per year can grow over time, using the Investor.gov calculator.
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10 Years
You would have invested $10,000 after 10 years and watched your portfolio turn into $14,486. It’s not a life-changing amount of money, but it gives a 28-year-old early wins without committing large monthly sums to their portfolios.
Contributing $83.33 per month is a good starting point that may inspire you to ramp up your monthly investments. However, all of these calculations will continue to assume that you only invest $1,000 per year.
20 Years
At this point, the investor has turned 38 and may have purchased some big items, such as a house and a car. However, steadily investing $1,000 per year will result in $20,000 in total investments. That principal turns into $45,760.
The power of compounding starts to become more pronounced. The money you invested 10 to 20 years ago has enjoyed annualized 8% gains for quite a while. Recent contributions haven’t had as much time to compound, but your older investments are doing the heavy work. This trend will become more apparent in future calculations.
30 Years
An 18-year-old doesn’t want to think about life as a 48-year-old, but in this case, it translates to having more money. After 30 years, an investor has contributed $30,000 to their portfolio following this framework. Now, it has turned into $113,279.
You invested the same amount of money in your second decade as you did in your third decade. However, your portfolio has almost quadrupled, while just 10 years ago, it had barely doubled.
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40 Years
Your portfolio will more than double every 10 years if you achieve an annualized 8% return and continue to invest $1,000 per year. That rule plays out with this calculation. A 58-year-old who follows this strategy for 40 years will end up with $259,046. That comes from $40,000 in total investments.
Older investors may start to get wary about having significant equity holdings. Some people may start to think about strategic withdrawals and how they will use their nest egg as a bridge before collecting Social Security checks. Still, $83.33 per month is a reasonable amount of money, making it feasible to continue on this path.
50 Years
You may be retired at this point or on the verge of claiming Social Security. At this point, you would have invested $50,000 over 50 years to wind up with a $573,747 portfolio. For some people, that is enough to retire, if you combine it with Social Security and have a low cost of living. However, you will have to review your own numbers to determine if that is the case.
If you stop investing $1,000 per year at this point and give your portfolio 10 years to grow on its own, you will end up with roughly $1.24 million as a 78-year-old. These calculations show how small, consistent investments over a long period of time can add up quickly. You don’t have to start big. Even $1 per month builds momentum that can lead to much higher contributions in the future.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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