Here's How Big a $50,000 Investment in the S&P 500 Could Get in 25 Years
Key Points
The Vanguard S&P 500 ETF is a low-cost fund that gives investors exposure to the top stocks on U.S. markets.
While the S&P 500 has historically averaged annual returns of around 10%, future gains could be lower due to the stock market's strong performance in recent years.
Even a small change in the average growth rate can significantly affect a portfolio's balance in the long term.
Investing in the S&P 500, an index of the 500 leading stocks on U.S. markets, has historically yielded solid returns. It has averaged an annual return of around 10% for decades. At that kind of return, you would expect your investment to double roughly every seven years.
An exchange-traded fund (ETF) such as the Vanguard S&P 500 ETF (NYSEMKT: VOO) can be a potentially ideal long-term investment, as it tracks the S&P 500 while charging minimal fees -- its expense ratio is just 0.03%. It can be a suitable option to allocate a large amount of money to, as it's a much safer option than investing in individual stocks.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
But just how big could a $50,000 investment in a fund that tracks the S&P 500 grow to be worth in 25 years? Let's take a look.
Image source: Getty Images.
Why forecasting future returns can be challenging
Although the S&P 500 has averaged a 10% return for the long haul, there have been periods where investors have earned far less than that. Investing at a time when the market has been hot, as it has been in recent years, could result in lower future returns. Thus, while it may be tempting and easy to just assume a 10% return every year, the reality is likely to be far different.
For investors, it may be prudent to factor in some skepticism and brace for the possibility of lower returns in the future. Over the next 25 years, the index may average closer to 9% return rather than 10%, for instance. While it may seem like a minor difference, as you'll see below, it can still have a significant impact on the long term.
Here's how large a $50,000 investment might get
Assuming someone were to invest $50,000 in a fund that tracks the S&P 500, such as the Vanguard ETF noted earlier, here's how large the investment could grow over the years. The table below doesn't include any fund fees or other expenses.
| Year | 9% Annual Return | 10% Annual Return |
|---|---|---|
| 5 | $76,931 | $80,526 |
| 10 | $118,368 | $129,687 |
| 15 | $182,124 | $208,862 |
| 20 | $280,221 | $336,375 |
| 25 | $431,154 | $541,735 |
Table and calculations by author.
While a 1% difference in annual return may seem modest, over a 25-year period it amounts to about $110,000 based on the size of this investment. This is why even expecting a modest slowdown in the growth rate can have a drastic impact on a portfolio's future balance.
Although it's impossible to know what the index's future growth rate will be, there is one silver lining that remains true: investing in S&P 500 index funds can be a great way for investors to grow their portfolios over the long term while keeping their risk relatively low.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.