I’m Afraid to Invest
It is a tough time to be an investor. The political, social, and racial environment is troubling. Despite the stellar long-term performance of the stock market, investors are nervous about committing capital to stocks. If you’re frightened to invest, consider a monthly dollar-cost averaging program.
Let’s assume you can invest $120,000 today, but you’re not ready to push all your chips to the center of the table. In this case, invest $1,000 per month for ten years in Vanguard’s 500 Index Fund. Did this strategy work? After ten years, your $120,000 is now worth $219,537 – generating an average annual return of 11.8%.
If you expand your time horizon to twenty years, your $1,000 monthly investment is now worth $651,021, earning 9.1% per year.
How about thirty years? After thirty years, your automated monthly investment program of $1,000 is now worth $1.72 million, averaging 9% per year.
What about a forty-year timeline? After forty years, your investment is now worth $6.16 million, producing an average annual return of 10.4%.
Let’s look at a fifty-year time horizon. We now will invest $1,000 per month into the Investment Company of America mutual fund because the Vanguard 500 Index fund is not available. Your investment is now worth $57.76 million. The average annual return was 10.9%.
After sixty years, your dollar-cost averaging program has turned your $1,000 monthly investment into $195 million! The average annual return was 11.2%.
After fifty or sixty years, the numbers are ridiculous and probably not obtainable for most investors. I doubt many, if any, people can commit to investing monthly for sixty years. However, if you’re skittish, starting a monthly investment program could be your ticket to better returns.
Times are hard, but probably no worse than they have been over the past sixty years. Despite challenging times, the stock market has always marched higher. The key to long-term investment success is to follow your plan, save your money, and invest often. Do not let short-term market moves, or the media, derail your financial plans.
Be not afraid of growing slowly; be afraid only of standing still. ~ Chinese Proverb
June 29, 2020
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.
Investment source: Morningstar Hypothetical, returns are pre-tax, net of fees.