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By Selena Maranjian–Oct 26, 2021 at 6:29AM
Key Points
With enough time, multiple millions are possible.
You can end up with much more by adding dollars over the years.
Trust in the math.
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Not only is achieving $436,235 possible, but so is $1 million -- or more.
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.
Image source: Getty Images.
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: |
|---|---|
5 years | $40,263 |
10 years | $64,844 |
15 years | $104,431 |
20 years | $168,187 |
25 years | $270,868 |
30 years | $436,235 |
35 years | $702,561 |
40 years | $1,131,481 |
45 years | $1,822,262 |
50 years | $2,934,771 |
55 years | $4,726,479 |
60 years | $7,612,041 |
Source: Calculations by author.
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: |
|---|---|
5 years | $36,733 |
10 years | $53,973 |
15 years | $79,304 |
20 years | $116,524 |
25 years | $171,212 |
30 years | $251,566 |
35 years | $369,634 |
40 years | $543,113 |
45 years | $798,011 |
50 years | $1,172,540 |
55 years | $1,722,846 |
60 years | $2,531,427 |
Source: Calculations by author.
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.
Image source: Getty Images.
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 |
|---|---|---|---|
5 years | $31,680 | $63,359 | $95,039 |
10 years | $78,227 | $156,455 | $234,682 |
15 years | $146,621 | $293,243 | $439,864 |
20 years | $247,115 | $494,229 | $741,344 |
25 years | $394,772 | $789,544 | $1.2 million |
30 years | $611,729 | $1.2 million | $1.8 million |
35 years | $930,511 | $1.9 million | $2.8 million |
40 years | $1.4 million | $2.8 million | $4.2 million |
Calculations by author.
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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543%
As a seasoned financial expert with a deep understanding of investment strategies and wealth accumulation, I can attest to the principles outlined in the provided article. The concepts presented here are rooted in fundamental financial mathematics and align with widely accepted investment strategies. Let's break down the key points and elaborate on the concepts used in the article:
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Compound Growth and Stock Market Returns: The article emphasizes the power of compound growth and the role of the stock market in generating returns. The average annual return of the stock market is cited as close to 10%, providing the foundation for the calculations presented.
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Investment Time Horizon: The article highlights the importance of time in accumulating substantial wealth. The longer the investment horizon, the more significant the potential for compounded returns. Various time periods, ranging from 5 to 60 years, are used to illustrate how an initial investment can grow over time.
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Mathematical Calculations: The article utilizes mathematical calculations to demonstrate the potential growth of investments. Two scenarios are presented: one with an 8% annual return and another with a more optimistic 10% return. These scenarios are reflected in tables projecting the growth of a $25,000 investment over different time frames.
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Regular Contributions and Dollar-Cost Averaging: The article suggests that regular contributions to investments can enhance wealth accumulation. It introduces the concept of dollar-cost averaging by showing how annual investments of $5,000, $10,000, or $15,000 can lead to substantial wealth over time, even if the initial investment is smaller.
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Index Funds and Diversification: The article recommends low-cost, broad-market index funds for most investors. Index funds provide diversification by spreading investments across various companies, reducing risk and providing an opportunity to earn returns in line with the overall market.
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Patience and Determination: The article underscores the importance of patience and determination in long-term investing. It acknowledges that significant growth often occurs in the later years, requiring investors to stay committed to their financial plans.
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Automation of Investments: To address the need for determination, the article suggests automating some of the investment processes. Automating contributions can help investors stay disciplined and consistent in their approach, avoiding the pitfalls of procrastination or loss of interest.
In summary, the article offers a comprehensive overview of wealth accumulation through long-term investing in the stock market, employing sound financial principles such as compound growth, diversification, and disciplined investing. The information provided serves as a valuable guide for individuals looking to build substantial wealth over time.
