Every January, millions of people start the New Year with the a goal of getting in shape after packing on a couple pounds during the holidays. What about starting a goal of getting into financial shape? 40 years ago, the average individual salary was roughly $10,000 and has grown about 4% per year. The annual return for the S&P 500 during the past 40 years was approximately 12%. If an individual had set aside 10% of their pay in each of the past 40 years and invested it in the stock market, they may have accumulated over $1.2 million dollars!
Today, the average salary is almost $50,000. If an investor saves just 15%, 10%, or as little as 5% of their salary each year, they could potentially amass a significant sum in 40 years even with more modest return and salary growth assumptions. The second chart below, shows the hypothetical growth of this investment technique assuming a market return of 6% and annual salary appreciation of 2%. An investor could potentially have well over a million dollars by the time they retire.
Instead of wasting money on a new gym membership this year, stay active outdoors or pick up a sport and invest in your financial fitness.
Hypothetical Growth, Investing 10% of Salary Each Year – Last 40 Years
Hypothetical Growth, Investing 5%, 10% and 15% of Salary Each Year – Next 40 Years?
Source: https://www.ssa.gov/oact/COLA/AWI.html, Bloomberg