If you invest in a mutual fund which would track the market, you should expect returns of between 10 and 15% per year. This won’t be a steady return – there will be years when you make 20% and years when you lose 10%, but on average that has been the return for the last several years and there is little reason to expect things to change.
Using the rule of 71 (divide 71 by the interest rate – that is the number of years required for the money to double) at 10% your $2000 will be worth:
Year Amount
2011 $2000
2018 $4000
2025 $8000
2032 $16000
2039 $32,000
2046 $64,000
2053 $128,000
2060 $256,000
So, in about 49 years, about the time an individual who starts investing at 20 should expect to be working, your $2,000 has turned into $256,000.
Note that at first there is little change – it is during the later years that you’re making around $50,000 per year. This is missed by many who decide to pull their money out of a 401k, despite the high fees and taxes that are charged. There is a feeling that it is “free money” since their employer contributed some or most of it. The temptation to use that $8,000 for paying off credit cards, putting a down payment on a house, or another use is also tempting. Do so, however, and you may be giving up $1M or more in retirement – the difference between caviar and dog food.
SmallIvy
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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing
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