What is the 30-year total return for S&P500 or VTI?

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CO1Mtn
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What is the 30-year total return for S&P500 or VTI?

Post by CO1Mtn » Wed Mar 25, 2020 4:31 pm

Greetings,

I'm relatively new to investing. I have a few bonds that someone bought me, and a savings account (I keep all my money in savings/checking), and a small coin box full of silver dollars (real silver), but that's about all. I was talking with someone at work who directed me to come to this website. If you have time, would you be able to answer this question for me please?

My friend at work says I am missing out by only using bonds and silver, and my checking account. He said I should invest in the stock market also. And I perceive that now is a really good time to be buying stocks. I asked him what he does and he was explaining about VTI, which is part of the S&P500. I always hear "the DOW is up such and such points today," or "the S&P500 closed out at a high" or "the DOW closed down such and such points today" or some such on the radio at the top of the hour when they broadcast the news.

So apparently, from what I've been reading, my little savings account fund is not really going to go anywhere because it's going to get affected by inflation. And the bonds are ok but not as great as stocks. Now I know I can expect to at least keep up with inflation with my bonds and my silver collection...

But here's my question:
If I invested some money in the VTI fund like my coworker does, what can I expect it to look like in 30 years, when I reach age 65 and (hopefully) retire? If I have $50,000 saved up (which is a lot to me, but probably not a lot to many of the forum members here), and I invested it in VTI today, how much would that $50,000 turn into in 30 years? Would it double? I know it's as asking for a crystal ball in a way, but if you had to make an educated guess, what would happen to that $50,000 over the course of 30 years, if I left it untouched?

Thank you in advance for any help!

iraconfused
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Re: What is the 30-year total return for S&P500 or VTI?

Post by iraconfused » Wed Mar 25, 2020 7:51 pm

S&P 500 averages 10% a year. $50k after 30 years is $990k+/- providing you do not at more money.

Thesaints
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Re: What is the 30-year total return for S&P500 or VTI?

Post by Thesaints » Wed Mar 25, 2020 7:55 pm

CO1Mtn wrote:
Wed Mar 25, 2020 4:31 pm
Now I know I can expect to at least keep up with inflation with my bonds and my silver collection...
Not really. 10 years ago silver was ~$18/ozt.
iraconfused wrote:
Wed Mar 25, 2020 7:51 pm
S&P 500 averages 10% a year. $50k after 30 years is $990k+/- providing you do not at more money.
With what margin of error ?

dbr
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Re: What is the 30-year total return for S&P500 or VTI?

Post by dbr » Wed Mar 25, 2020 8:00 pm

There is lots of data but for example Portfolio Visualizer goes back to 1985 and for that period to now (don't know how exactly up to date) VTSMX has a CAGR of 9.33%. But keep in mind the standard deviation of annual returns is about 14.6% So with a little sloppiness about statistics and stuff that CAGR in a different periods of time has a one standard deviation of maybe about 3% and two standard deviations of 6%. That means what you are actually going to get could be anywhere from 3.3% to 15.3% (two SD). But rather than throw out very approximate statistics, why not fire up www.firecalc.com put in some numbers, and actually see the range over which US stocks actually performed starting in the different years of the last hundred years or so. The point of the lesson is to understand that predicting your individual fate from the average return is a fool's errand.

PS Before someone jumps on it a common observation is that return to the mean behavior might reduce that spread -- so use 2% and 4% not 3% and 6%. I actually ran the problem in FireCalc and got 8% for the mean and 2% for the SD of CAGR for 25 year periods between 1872 and 1994 for the data that is in FireCalc (which stops for a starting year of 1994 because 1994 + 25 = 2019).
Last edited by dbr on Wed Mar 25, 2020 8:10 pm, edited 1 time in total.

junior
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Re: What is the 30-year total return for S&P500 or VTI?

Post by junior » Wed Mar 25, 2020 8:04 pm

Type in investment return calcator in google. Try whatever calculator comes up for your time period and set it for the results of 3% returns, 4% returns etc. up to 7%. Returns will be somewhere between 3 and 7 percent in the most likely scenarios, nobody knows what exactly it will be.

Don't listen to anyone indicating higher than 7% returns are possible they are including inflation. Just run the calculation without accounting for inflation as its easier to picture.

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CO1Mtn
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Re: What is the 30-year total return for S&P500 or VTI?

Post by CO1Mtn » Wed Mar 25, 2020 8:19 pm

Ok thank you. I tried using the "portfolio visualizer" tool. It said my investment would be about triple after 30 years (if you subtract inflation). I noticed that when I add in some bonds, it helps a little.

Irenaeus
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Re: What is the 30-year total return for S&P500 or VTI?

Post by Irenaeus » Wed Mar 25, 2020 8:25 pm

Hello CO1Mtn and welcome. Since 1900, annualized real (after inflation) returns have been about 5.2% for stocks, 2.0% for bonds and 0.8% for treasury bills. Some round that to 5%, 2% and 1%.

alex_686
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Re: What is the 30-year total return for S&P500 or VTI?

Post by alex_686 » Wed Mar 25, 2020 8:28 pm

CO1Mtn wrote:
Wed Mar 25, 2020 8:19 pm
Ok thank you. I tried using the "portfolio visualizer" tool. It said my investment would be about triple after 30 years (if you subtract inflation). I noticed that when I add in some bonds, it helps a little.
Hello! Welcome.

I would be deeply skeptical of the above number. And I say this as a strong proponent that most individuals should invest long term in equities. Even in markets like today's.

The above calculation assumes that there is some magical number for the long term growth prospects of the stock market. If there is one thing I have learned from studding 200 years worth of returns over multiple markets is that there is a magical number. Unfortunately that magical number changes every 5 to 30 years. The number is sometimes closer to 2%, other times closer to 8%.

Not trying to be harsh. I don't want to overplay the benefits or underplay the risks. Once again, I encourage people to invest in stocks, but with their eyes wide open.

As a novice I would recommend 3 things. First, write up a IPS. There are examples on this website. Best to figure out what your goals and risk tolerance are. Second, invest. Equities have outperformed bonds in the long run. Second, look at a target date fund. It blends equities and bonds in a conservative way for a person of your age. It is a little generic, but it is a very solid product.

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Tyler9000
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Re: What is the 30-year total return for S&P500 or VTI?

Post by Tyler9000 » Wed Mar 25, 2020 8:29 pm

CO1Mtn wrote:
Wed Mar 25, 2020 4:31 pm
But here's my question:
If I invested some money in the VTI fund like my coworker does, what can I expect it to look like in 30 years, when I reach age 65 and (hopefully) retire? If I have $50,000 saved up (which is a lot to me, but probably not a lot to many of the forum members here), and I invested it in VTI today, how much would that $50,000 turn into in 30 years? Would it double? I know it's as asking for a crystal ball in a way, but if you had to make an educated guess, what would happen to that $50,000 over the course of 30 years, if I left it untouched?
The future is impossible to predict, but we can get a good idea of the range of possibilities by studying the past.

This chart measures the portfolio growth of the total US stock market (the index VTI tracks) using every annual start date since 1970. So it shows the best times to invest, the worst times, and everything in between. Everything is also adjusted for inflation, which is very important for evaluating the actual purchasing power over long timframes.

Image

Historically speaking, the luckiest investor had about $700k at the end of 30 years while unluckiest investor had about $250k. Planning conservatively, I would estimate that something in the $400k range might be a reasonable guess. There are no guarantees with investing and it's possible the next 30 years may be a new lowest line on this chart, but it's a good place to start when evaluating different options.

In addition, note the horizontal line marked at the original $50k. Everything has a tradeoff. Investing all of your money in stocks also carries risk, and some unlucky investors with a similar portfolio also stayed underwater for a very long time before finally getting back to where they started 14 years later. Will you be happy waiting this long if times are tough? If so, great! If not, then it might be a good idea to evaluate more conservative portfolios with less risk.

If you'd like to run your own numbers and experiment with different portfolio options and annual contribution levels, you can use the same tool for yourself:

https://portfoliocharts.com/portfolio/portfolio-growth/

The asset options may be confusing if you're not familiar with the terms, but for reference USA-TSM represents the total stock market in the United States and is equivalent to VTI. IT represents intermediate bonds, and BIL represents invested cash. And if you're not sure where to start and want to browse other portfolio ideas promoted by many respected investment professionals, try this:

https://portfoliocharts.com/portfolios/

I hope that helps!
Last edited by Tyler9000 on Wed Mar 25, 2020 9:51 pm, edited 1 time in total.

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CO1Mtn
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Re: What is the 30-year total return for S&P500 or VTI?

Post by CO1Mtn » Wed Mar 25, 2020 9:15 pm

Thank you!

dbr
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Re: What is the 30-year total return for S&P500 or VTI?

Post by dbr » Wed Mar 25, 2020 9:29 pm

Tyler9000 wrote:
Wed Mar 25, 2020 8:29 pm

snip

Historically speaking, the luckiest investor had about $700k at the end of 30 years while unluckiest investor of had about $250k. Planning conservatively, I would estimate that something in the $400k range might be a reasonable guess. There are no guarantees with investing and it's possible the next 30 years may be a new lowest line on this chart, but it's a good place to start when evaluating different options.

snip
Thanks for the chart. This is what I am talking about. You have to do at least this much at a minimum or you are talking nonsense.

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Nate79
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Re: What is the 30-year total return for S&P500 or VTI?

Post by Nate79 » Wed Mar 25, 2020 9:30 pm

Welcome to Bogleheads. The sites wiki is an excellent source of information. I would suggest you start here and read about getting started with investing:

https://www.bogleheads.org/wiki/Getting_started

It's not a good idea to jump all the way to the sophisticated details that other posters have thrown at you. Start with the basics.

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cos
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Re: What is the 30-year total return for S&P500 or VTI?

Post by cos » Wed Mar 25, 2020 9:33 pm

CO1Mtn wrote:
Wed Mar 25, 2020 4:31 pm
I'm relatively new to investing. I have a few bonds that someone bought me, and a savings account (I keep all my money in savings/checking), and a small coin box full of silver dollars (real silver), but that's about all. I was talking with someone at work who directed me to come to this website. If you have time, would you be able to answer this question for me please?
I'd love to answer your questions! But first, I'd like to point out that keeping the majority of your money in bonds, silver, low-yield savings, and checking accounts is a terrible idea. You should absolutely invest it.
CO1Mtn wrote:
Wed Mar 25, 2020 4:31 pm
My friend at work says I am missing out by only using bonds and silver, and my checking account. He said I should invest in the stock market also. And I perceive that now is a really good time to be buying stocks.
It's always a good time to buy stocks! Well, the best time was in the distant past. The second best time is today. You want as much time in the market as possible. You'll often hear people say something along the lines of, "time in the market beats timing the market." This is probably the single best piece of investing advice you can follow.
CO1Mtn wrote:
Wed Mar 25, 2020 4:31 pm
I asked him what he does and he was explaining about VTI, which is part of the S&P500. I always hear "the DOW is up such and such points today," or "the S&P500 closed out at a high" or "the DOW closed down such and such points today" or some such on the radio at the top of the hour when they broadcast the news.
You've got this backwards.

The short version: the S&P 500 is a subset of VTI, not the other way around.

The long version: VTI is an exchange-traded fund, or ETF, which tracks the CRSP US Total Market Index, a market index which represents the entirety of the US stock market weighted by market capitalization. The S&P 500 Index is a market index just like the CRSP US Total Market Index. However, unlike the CRSP US Total Market Index, the S&P 500 Index represents only the largest 500 companies in the US stock market by market capitalization. Similarly, VOO is an ETF just like VTI. However, unlike VTI, VOO tracks the S&P 500 Index. The S&P 500 Index is a subset of the CRSP US Total Market Index, and therefore, VOO is a subset of VTI.
CO1Mtn wrote:
Wed Mar 25, 2020 4:31 pm
So apparently, from what I've been reading, my little savings account fund is not really going to go anywhere because it's going to get affected by inflation. And the bonds are ok but not as great as stocks. Now I know I can expect to at least keep up with inflation with my bonds and my silver collection...
Hooray! With this knowledge alone, you're already lightyears ahead of the majority of the US population. Congratulations, and welcome to the world of investing! :beer
CO1Mtn wrote:
Wed Mar 25, 2020 4:31 pm
But here's my question:
If I invested some money in the VTI fund like my coworker does, what can I expect it to look like in 30 years, when I reach age 65 and (hopefully) retire? If I have $50,000 saved up (which is a lot to me, but probably not a lot to many of the forum members here), and I invested it in VTI today, how much would that $50,000 turn into in 30 years? Would it double? I know it's as asking for a crystal ball in a way, but if you had to make an educated guess, what would happen to that $50,000 over the course of 30 years, if I left it untouched?
First off, it's impossible to predict the future. However, I can tell you what would have happened if you had invested $50,000 into VTI in May of 1992 (~28 years ago) and took it out last month, February of 2020.

Over the past 28 years, that $50,000 would have grown to $613,741, not just doubling but duodecupling (12x) your initial investment.

Check out this graph if you want to visualize precisely how $50,000 invested into the US total stock market (i.e. VTI) performed over the past ~28 years in comparison to that same $50,000 invested into the US total bond market (i.e. BND).

Compounding returns are pretty sweet, eh? By the way, if you want more help managing your personal finances in general, I recommend reading the entirety of this short guide and following it to a T.

As for where to invest, you can't go wrong with a traditional brokerage like Vanguard. Their target-date retirement funds include a mixture of VTI, BND, and their international equivalents, VXUS and BNDX. The balance of stocks and bonds in these target-date retirement funds initially favors stocks (historically more volatile and more profitable) but shifts towards bonds (historically less volatile and less profitable) as you age.

Personally, I use M1 Finance, a relative newcomer to the brokerage game. I like them because they have low minimums, don't charge any fees, allow for fractional shares, automate the dirty work, and give me full control of my portfolio. If you just want to invest in VTI and forget about it, M1 Finance is the place to do it. However, if you have at least $3,000 ready to invest, I would recommend doing this at Vanguard instead. Not only do they own and operate VTI, but they have a much longer track record than M1 Finance. VTSAX is the mutual fund equivalent of VTI and allows for fractional investing just like M1 Finance. The only catch is the steep $3,000 minimum.

Finally, if you read all of this, you read the guide I linked above, and your coworker doesn't have the time or ability to help you, I recommend that you invest with a robo-advisor like Betterment. In exchange for 0.25% of your assets every year, they'll help you set up and maintain an investment portfolio that's right for your circumstances in addition to helping you manage your personal finances in general.
Last edited by cos on Wed Mar 25, 2020 10:16 pm, edited 8 times in total.

dbr
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Re: What is the 30-year total return for S&P500 or VTI?

Post by dbr » Wed Mar 25, 2020 9:36 pm

Nate79 wrote:
Wed Mar 25, 2020 9:30 pm
Welcome to Bogleheads. The sites wiki is an excellent source of information. I would suggest you start here and read about getting started with investing:

https://www.bogleheads.org/wiki/Getting_started

It's not a good idea to jump all the way to the sophisticated details that other posters have thrown at you. Start with the basics.
I may be one of the guilty ones, but second the above recommendation.

Investing is simple but not simpler than it is.

MoneyMarathon
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Re: What is the 30-year total return for S&P500 or VTI?

Post by MoneyMarathon » Thu Mar 26, 2020 2:01 am

CO1Mtn wrote:
Wed Mar 25, 2020 4:31 pm
Thank you in advance for any help!
The hardest thing about investing in stocks isn't turning a profit after 30 years, it's holding them for 30 years.

The easiest way to stay invested for 30 years is to have investments that won't lose as much when stocks are down. You'll feel clever when the market goes down more than your investments and feel good about keeping to the plan.

This page from Vanguard provides a good way to think about asset allocation:
https://personal.vanguard.com/us/insigh ... llocations

Look at the info. Feel your $50,000 becoming $25,000 in front of your eyes. Would that be a problem for you? For many people it is, and for many people they don't realize it is until it happens. For some people, they tolerate $50k to $25k but do not tolerate $500k to $250k. It's important not to have more in the stock market than you feel you can be comfortable with fluctuating wildly in value.

Take a look at the case for using an all-in-one fund:

viewtopic.php?t=287967

There's a ton of room for behavioral error when you have to actually push buttons to rebalance and when you have to actually view a separate chunk of your money go down by half. With an all-in-one fund, you remove both of those sources of behavioral mistakes. Most investors underperform because of behavioral mistakes, so the simple one fund approach has benefits that can outweigh any of the benefits of the myriad alternatives.

Consider the traditional 60% stocks / 40% bonds portfolio as a set-it-and-forget-it fixed allocation:

https://investor.vanguard.com/mutual-fu ... view/vsmgx

Vanguard puts it at an 8.6% annualized return historically. One bit of mental arithmetic you can do to convert annualized return to doubling time is called the "rule of 72." So if an annualized return is 8% then the approximate doubling time would be 72 / 8 = 9 years. In thirty years, you could have about eight times the original investment, more or less.

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CO1Mtn
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Re: What is the 30-year total return for S&P500 or VTI?

Post by CO1Mtn » Thu Mar 26, 2020 2:35 pm

It almost seems too easy. I just let the money sit there with dividend reinvestment, and then when I retire I'll have over $250,000.

dbr
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Re: What is the 30-year total return for S&P500 or VTI?

Post by dbr » Thu Mar 26, 2020 2:56 pm

CO1Mtn wrote:
Thu Mar 26, 2020 2:35 pm
It almost seems too easy. I just let the money sit there with dividend reinvestment, and then when I retire I'll have over $250,000.
No, you could have way less than that or way more than that. Consider just for starters that in year 29 you could have $250k and the market could crash to half that and in one year you would be down to $125k.

It is true, however, that it is that easy in the sense that you don't have to do anything that resembles actual work. What you do have to do is be willing to sit there looking at all that money and not spend any of it. For many people that is far more difficult than doing actual work.

bugleheadd
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Re: What is the 30-year total return for S&P500 or VTI?

Post by bugleheadd » Fri Mar 27, 2020 8:01 am

on a related note, i know theres a dividend coming soon or has that happened already? i want to buy after the dividend drop, when should i buy?

MoneyMarathon
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Re: What is the 30-year total return for S&P500 or VTI?

Post by MoneyMarathon » Fri Mar 27, 2020 4:41 pm

bugleheadd wrote:
Fri Mar 27, 2020 8:01 am
on a related note, i know theres a dividend coming soon or has that happened already? i want to buy after the dividend drop, when should i buy?
With volatility like this, a dividend drop is a non event.

Normal advice is to lump sum, or DCA over a short time period, whichever you're more comfortable with (not based on predicting the future). The market will go down after you invest, at some point, and you probably will see your investments fall below what you contributed.

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CO1Mtn
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Re: What is the 30-year total return for S&P500 or VTI?

Post by CO1Mtn » Mon Mar 30, 2020 1:17 pm

Ok, I've invested in VTI. I'm in at $127.50 per share. Now my question is though, with this big $2 trillion bailout that just got passed, is this basically going to erode the value of my investment by 10% though? It seems the government is just printing money. Or will the stock prices go up higher to reflect that?

Oh, and I just have to laugh, how tempting it is to sell since the price went up to $129 per share! I noticed that it went up and down a lot just in a few hours today. But according to Jack Bogle, I am not supposed to do anything. I am supposed to just let it go up and down without touching it for 30 years. How does anyone manage to do that? The patience needed is phenomenal.

alex_686
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Re: What is the 30-year total return for S&P500 or VTI?

Post by alex_686 » Mon Mar 30, 2020 1:35 pm

CO1Mtn wrote:
Mon Mar 30, 2020 1:17 pm
Ok, I've invested in VTI. I'm in at $127.50 per share. Now my question is though, with this big $2 trillion bailout that just got passed, is this basically going to erode the value of my investment by 10% though? It seems the government is just printing money. Or will the stock prices go up higher to reflect that?
There is a school of thought that the 2 trillion dollar bailout will cause inflation. Lets assume this is true. Equities are claims on real assets. Real assets' values tend to follow inflation. Thus equities tend to be a good hedge against inflation. And if not equities - what? Bonds do poorly during inflationary times.

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