Many people are hesitant to invest in stocks or stock index funds in a brokerage account simply because they see it as a risky thing to do with money. And if we’re talking about a period of a few months or even a few years, there’s a solid argument to be made that it’s true.
On the other hand, you might be surprised at how predictable stock market performance can be over multi-decade periods of time. While there’s no way to know exactly what will happen over the next 10, 20, or 30 years, we can certainly use history as a guide. With that in mind, here’s how much a $10,000 investment in a basic S&P 500 index fund could grow by the middle of this century.
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Historic stock performance
The S&P 500 index is widely considered to be the best overall gauge of how the U.S. stock market is performing. And in short periods, it can be rather volatile. Since 1965, the S&P 500 has gained as much as 37.6% or lost as much as 37% in any single year. In the 2007–09 Great Recession, the index lost more than 50% of its value before bottoming.
However, over the long run, the S&P 500’s returns are surprisingly predictable. The exact performance depends on the particular time period you’re looking at, but in most multi-decade periods, the S&P 500 has returned about 10% on an annualized basis. Using the “since 1965” period as an example, the S&P 500 has returned an average of 10.2% per year from 1965 through the end of 2023.
How much could $10,000 grow by 2050?
For simplicity, let’s say that the S&P 500 produced an annualized return of 10% for the next few decades. Of course, in some years, the returns will be greater, and in some they will be (much) lower, but we’re talking about the long-term average.
Since it’s almost 2025, we’ll use a period of 25 years until 2050. So, if we take a $10,000 investment and compound it at a 10% annualized return over a 25-year timeframe, you would end up with more than $108,000.
Again, this is simply based on historical performance, which doesn’t guarantee future results. In other words, the S&P 500’s actual rate of return between now and 2025 isn’t likely to be exactly 10% when annualized. But the point is that over long periods, the stock market has the ability to turn relatively small investments into much larger sums of money.
Take it a step further
Of course, this is what could happen if you made a one-time $10,000 investment in an S&P 500 index fund through a broker or investment app and simply left it alone.
Now imagine if you did this but also added a few thousand dollars each year to your investment and let it compound over time. If you invested $10,000 in an S&P 500 index fund today and added $500 per month to your investment until 2050, you’d end up with a nearly $700,000 nest egg based on a 10% annualized rate of return.
If you’ve ever heard someone say that over time, the stock market outperforms all other major asset classes, it’s true. It isn’t likely to grow in a straight line over time, but if you invest consistently and allow a long period of time for your investments to grow, it’s extremely likely that you’ll end up with much more money than you started with.
