Last year I wrote an article laying out a hypothetical scenario where you can become a millionaire in 15 years. As idealistic as that article was, it was written in good faith with the intention of sharing and educating what I hope would impart some insights and motivation for my readers to get out and start their own investment journey.
I still own the positions in the portfolio I built for that demonstration, the reality of the market however is not the 40% return as predicted by the original forecast but instead a -22.51% return. Even the S&P 500 ETF, my highest weighted share for stability, was under -6.69%.
So let’s pivot back to the video’s claim, using past S&P 500 average growth of 10 percent, and evaluate the claims:
- You only need to put in $2,000 a year. Divide this number by 12 to come up with your monthly contribution of $166 a month which you actually need to save away.
- You will make $1.5 million dollar in 20 years
- Assumes an average S&P 500 rate of 10% growth, which is now actually idealistic given the current economy
The compound interest in this scenario would give you a total of $128,322 growth, a mere 12% of a million, nowhere close to the 1.5 million dollar claim. See for yourself below.
Even, If you extend the year to 30, you would only make $381,166. So, false claim!
But if you can put in at least $6,000 a year instead, or $500 a month then yes, it is possible in 30 years assuming the same rate of return on the S&P 500. At that time, you will make $1,149,581 – but wait there’s tax, depending on where you are in the bracket you can be taxed anywhere from 10 to 37 percent!
At this point, I’d say let’s just go with Life Insurance instead! It offers much more flexibility with when and how you want to withdraw your money. You take it out tax-free and have the immediate benefit of protection for your family in case something happens to you.
I will write more on this in detail for another article, but let me leave you with this illustration to think about.
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