Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

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an_asker
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Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by an_asker »

The last few weeks, I have seen a couple of folks sharing their retirement account progressions. Inspired by those posts and as I had some free time on my hands, I decided to do some research to visualize the effects of compounding.

What kind of a nest egg would a person have if he/she maxed out on both 401(k) as well as a Roth IRA, and put the saved money into the stock market on the first of the next year. I arbitrarily picked 1994 as the starting point for this analysis. For instance, for the year 1994 the savings would be $11,240 ($9,240 in the 401k and $2,000 in Roth IRA) and it would be put into the market on 1/1/1995. I used three different funds for this analysis - Vanguard's S&P 500 Fund Admiral Shares, Total Bond Market Fund Admiral Shares and Total International Stock Index Fund Admiral Shares.

For the S&P 500 option, the total amount would be just over $811,900 for the 401(k) and a bit under $208,300 for the Roth IRA.

For the Bond option, the total amount would be just over $509,300 for the 401(k) and a bit under $130,000 for the Roth IRA.

For the International Fund option, the total amount would be just under $511,500 for the 401(k) and $133,300 for the Roth IRA.

Note that this analysis does not include any employer contributions.

Here is a screenshot of the excel spreadsheet with the actual data.

Image
PFInterest
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Re: Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by PFInterest »

are you arguing stocks win?
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triceratop
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Re: Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by triceratop »

Have you seen this site which does these calculations for entire portfolios and includes rebalancing? https://www.portfoliovisualizer.com/backtest-portfolio
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
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an_asker
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Re: Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by an_asker »

triceratop wrote:HVe you seen this site which does these calculations for entire portfolios and includes rebalancing? https://www.portfoliovisualizer.com/backtest-portfolio
Thanks for the helpful link.

That said, unless I am missing something, I don't think it does exactly what I did. I used different contribution amounts for each year (the IRS max permissible amount). The link only allows you to enter one quantity or a fixed change to the quantity every year. I would still have to go back and redo it multiple times to get to what I was getting at.

BTW, I started this whole exercise because a couple of folks posted their retirement assets and I was not really as close to those numbers as I expected; so I tried to see how or why I was so short. Now that I am doing the research, I went back and looked at my withholdings and realized that I had not done as good a job with my 401(k) contributions - when I was starting out - as I thought I had. But I am OK with it, because looking back even with hindsight 20/20, I don't see how I could have contributed much more (a little more, yes) than what I was doing back then.

Bottom line: I am at peace with my stash of cash :-) And it was really helpful to do that analysis that I posted!
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an_asker
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Re: Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by an_asker »

PFInterest wrote:are you arguing stocks win?
No, I am not arguing either way, though I was about to add an editorial comment to my OP, but decided to keep quiet :-)
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ray.james
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Re: Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by ray.james »

Dual income means 2 401ks or at least 2 Roth ira.
Employer contributions.
Catch up contributions
Rollovers from 401k equivalents

These would make the difference.

Edit: added more
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
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triceratop
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Re: Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by triceratop »

an_asker wrote:
triceratop wrote:HVe you seen this site which does these calculations for entire portfolios and includes rebalancing? https://www.portfoliovisualizer.com/backtest-portfolio
Thanks for the helpful link.

That said, unless I am missing something, I don't think it does exactly what I did. I used different contribution amounts for each year (the IRS max permissible amount). The link only allows you to enter one quantity or a fixed change to the quantity every year. I would still have to go back and redo it multiple times to get to what I was getting at.

BTW, I started this whole exercise because a couple of folks posted their retirement assets and I was not really as close to those numbers as I expected; so I tried to see how or why I was so short. Now that I am doing the research, I went back and looked at my withholdings and realized that I had not done as good a job with my 401(k) contributions - when I was starting out - as I thought I had. But I am OK with it, because looking back even with hindsight 20/20, I don't see how I could have contributed much more (a little more, yes) than what I was doing back then.

Bottom line: I am at peace with my stash of cash :-) And it was really helpful to do that analysis that I posted!
To be honest I don't see the utility of this analysis, so help me out: what did this help you understand. I hope it didn't tell you that a 401k is a better vehicle than a Roth IRA.

The contribution limits are different for each type of account. Also, you have to pay taxes on traditional 401k withdrawals while Roth is post tax. So of course you'll have more "savings" with a 401k if invested in the same asset class at the same expense. Not sure what that actually tells you though. You'll still need to pay tax.

You'll probably want both 401k and Roth contributions -- a combination contributed to/converted from at various marginal tax rates has the potential to give you a substantially reduced effective rate. That is the calculation you should be worried about. IMO comparing S&P500 to International across tax advantaged accounts is a distraction.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
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an_asker
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Re: Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by an_asker »

triceratop wrote:
an_asker wrote:
triceratop wrote:HVe you seen this site which does these calculations for entire portfolios and includes rebalancing? https://www.portfoliovisualizer.com/backtest-portfolio
Thanks for the helpful link.

That said, unless I am missing something, I don't think it does exactly what I did. I used different contribution amounts for each year (the IRS max permissible amount). The link only allows you to enter one quantity or a fixed change to the quantity every year. I would still have to go back and redo it multiple times to get to what I was getting at.

BTW, I started this whole exercise because a couple of folks posted their retirement assets and I was not really as close to those numbers as I expected; so I tried to see how or why I was so short. Now that I am doing the research, I went back and looked at my withholdings and realized that I had not done as good a job with my 401(k) contributions - when I was starting out - as I thought I had. But I am OK with it, because looking back even with hindsight 20/20, I don't see how I could have contributed much more (a little more, yes) than what I was doing back then.

Bottom line: I am at peace with my stash of cash :-) And it was really helpful to do that analysis that I posted!
To be honest I don't see the utility of this analysis, so help me out: what did this help you understand. I hope it didn't tell you that a 401k is a better vehicle than a Roth IRA.

The contribution limits are different for each type of account. Also, you have to pay taxes on traditional 401k withdrawals while Roth is post tax. So of course you'll have more "savings" with a 401k if invested in the same asset class at the same expense. Not sure what that actually tells you though. You'll still need to pay tax.

You'll probably want both 401k and Roth contributions -- a combination contributed to/converted from at various marginal tax rates has the potential to give you a substantially reduced effective rate. That is the calculation you should be worried about. IMO comparing S&P500 to International across tax advantaged accounts is a distraction.
The only thing it helped me out was to make me better understand why I had a lower retirement account balance than others who have been on a similar path. I realized that had I been maxing out my contributions (I realized only after this analysis that I had not been doing that early on in my career :oops:), I'd have been ahead. But then - like I wrote above - I don't think my salary back then would've allowed me to max out the 401(k) anyway, so it is not really my mistake that I am (comparatively) behind.

PS: Oh, and the Roth IRA column was just to get the total (max) amount that we could put in tax-advantaged accounts.
PFInterest
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Re: Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by PFInterest »

so people that saved more have more? ..... seems like a big spreadsheet to come to this conclusion.
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elgob.bogle
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Re: Hypothetical Growth of Retirement Account (S&P 500 vs. Bond vs. International)

Post by elgob.bogle »

Thanks for sharing!

elgob
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