Do you have $25,000? Would you like to turn it into $436,235? Well, the stock market can do that for you — and it can powerfully increase the value of just about any investment, whether it’s $25,000 or $2,500, or just $250.
Here’s a look at how it can happen — for you and anyone else.
It’s all math
It really is all about math — and not very complicated math, either. The stock market’s average annual return over many decades is close to 10%, though over shorter periods (like 20 years), it can be much higher or lower. So if you invest $25,000 in the stock market and average a 10% annual return, your investment will grow in value to $436,235 over 30 years.
The following table shows how it happens:
Over This Period, Growing at 10%:
$25,000 Will Grow to:
You can’t count on averaging 10%, though, so let’s be a bit more conservative. The following table reflects growth at 8% annually:
Over This Period, Growing at 8%:
$25,000 Will Grow to:
Growing at 8%, you’ll only reach $251,566 in 30 years. Still, that can be quite a useful sum in retirement. And there’s a chance, of course, that you might average 12% or more over your particular investing period. Go ahead and aim high, but don’t assume that great returns are in any way guaranteed.
How can you amass $436,235 yourself?
So how can you achieve the results above? Clearly, $25,000 in your hand and 30 years may do it. Be sure that you’re targeting annual returns that at least roughly match the stock market’s average, though — something that’s easy to do if you invest in low-cost, broad-market index funds.
For most investors, index funds are the best choice because they’re extremely easy to invest in and require little attention. Your money will simply be spread out across lots of companies immediately, giving you diversification and a chance to earn roughly the market’s return.
If you don’t have $25,000 ready to invest, that’s OK — because you can achieve the sums above with far less if you make regular investments in the stock market. Check out the following table:
Growing at 8% for:
$5,000 Invested Annually
$10,000 Invested Annually
$15,000 Invested Annually
Simply investing $5,000 each year can get you almost to that $436,235 in only 25 years, not 30 — and investing $10,000 annually can exceed $436,235 in only 20 years. Investing $15,000 annually — which might be very doable, especially if yours is a two-income household — can exceed $436,235 in only 15 years.
There are two more things you’ll need if you really want to achieve that $436,235 (or more!): patience and determination. Patience is necessary because the big growth in your account will happen in the later years. A glance at any of the tables above will confirm that in the first few five-year periods, your account will grow by tens of thousands, and in the later ones, by hundreds of thousands.
Determination is also necessary because without it, you can lose interest, lose faith in the process, or just procrastinate when it comes to investing annually. Believe in your retirement plan and stick with it. It might help to automate some of your investing, too.
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