If you're not an experienced stock market investor, you might be hesitant about jumping in, fearing that you'll see your holdings implode during a market crash or simply that you'll pick the wrong stocks. Those things can happen, but they're risks that can be managed.
Stock of good companies that head south during a market crash have always headed back up once the market recovers. Corrections and crashes happen every few years, and despite them, the stock market has averaged annual growth of around 10% over many decades. And you can avoid picking the wrong stocks by just picking all (or most) of them — via index funds.
So let's look at what long-term investing in the stock market can do for you.
How does $630,025 sound?
Stock market investing can mean the difference between a difficult retirement (Social Security benefits average less than $20,000 annually) and a comfortable one. Since relatively few of us have pensions these days, most of us need to be saving and investing to build financially secure futures.
Enter the stock market, which is arguably the best wealth builder around for most folks, outperforming bonds, gold, real estate, and other alternatives. Just what can it do for you? Well, take a gander at the table below, which shows what you might amass if you invest $10,000 every year over different periods, earning several different average growth rates:
Growing at 6%
Growing at 8%
Growing at 10%
There are different growth rates in the table because stock market returns are not guaranteed. The long-term average is around 10%, but over your own 20, 30, or even 40 years, it might average 8% or 6% or perhaps 12%. It's generally wise to hope for the best but prepare for the worst.
Here are some things to know related to the table above:
You can go from $0 to $630,025 if you invest $10,000 annually for 20 years and it grows at 10% per year.
You can amass $1 million in only 25, 30, or 35 years, depending on how the stock market grows.
A faster growth rate will mean a much bigger nest egg, but even a 6% growth rate can get you many hundreds of thousands of dollars over 20 to 25 years.
You can juice your results by investing more than that $10,000 annually. It may not be easy, but if you're married, you might have two incomes to draw from. And even if you're not, you might take on some side hustles or simply spend less.
You can aim to earn that 10% growth rate (or whatever it ends up being) by investing in one or more low-fee broad-market index funds. You don't need to be trying to pick the next super stocks. Index fund investing is easy — and effective.
At a minimum, understand that you have it within your power to improve your financial future by taking steps today — such as learning about investing and parking long-term dollars in an index fund.
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