I think a lot of young investors wonder “am I on pace?!”. With all the factors it can be hard to know. Well here’s a very rough look at where someone who makes equal monthly investments from 25 to 65 is at each age along the way.
This chart assumes a starting investment of $0 at the beginning of your 25th year (I know many are in the negatives at this age). Then, contributing $363/month for the next 40 years. You can see the massive power of compound growth and time. The first five years your investment only increases less than $30,000. But your last five years it increases over $300,000!
Of course your experience will be different. Maybe you’re getting out of debt first. Maybe you have a big lump sum but a lower monthly investment. Maybe you’re starting later but putting in a lot more per month.
One of my favorite tips to figure how where you’re at is to find an online investment growth calculator. I have one on my website that I built here. You can put in your age, starting investment amount, monthly investment amount, target retirement age, etc and it shows you what is projected to happen going forward. Try out some different numbers and see where you’ll be later. Look at what a difference changing your retirement date makes.
The stock market has historically returned about 10% over the last 100+ years. Inflation erodes about 2-3% of that. So I think it’s reasonable to use 7% as a forward-looking, inflation adjusted projection of your investment growth.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.