As the clichéd saying goes, past performance is no guarantee of future results. It is a pretty good indication of what’s likely, though, if the underpinnings of that performance don’t change.
To this end, assuming the stock market’s long-term history repeats itself, what would, say, a $1,000 investment in the S&P 500 (SNPINDEX: ^GSPC) made today be worth 25 years from now?
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It’s not too tough to figure out.
Crunching the numbers
You can’t invest in the S&P 500 index itself. But, you can buy an index fund like the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) meant to mirror it. They both do a good job of matching the index’s performance, too.
History says its performance is plenty promising. A $1,000 investment made in the S&P 500 exactly 25 years ago would be worth $6,604 today. And that’s not counting any dividend payments made in the meantime. Had you reinvested the index’s or ETFs’ dividends dished out between then and now, your position would be worth $10,540 today.
Assuming history repeats itself and the S&P 500 maintains its average net annual gain of nearly 10%, putting the same amount of money to work in the same investment could achieve roughly the same result, growing it to around $10,540 by late-August 2051.
A well-established growth rate for this economic backdrop
Again, past performance is no guarantee of future results. It’s possible the next 25 years won’t be as fruitful for stocks as the past 25 have been.
It’s possible, but seemingly unlikely. Not only has the market averaged an annual return of nearly 10% for the past 25 years, but that’s the average yearly net gain going all the way back to 1928. That long-term growth rate is too persistently consistent to pretend there’s nothing to it. Assuming that backdrop doesn’t change, look for this average yearly gain to repeat itself.
Just be prepared to hold through the inevitable ups and downs in shorter-term time frames.
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