Is It Worth Investing $348 a Year?
I was a bit reluctant to write this post due to the amount I mention on the title. However, I wanted to show how a few extra dollars invested per year can make a significant difference over the long term.
Let’s jump into it then.
Why the amount $348?
Well, it comes directly from my previous Medium story about how I managed to save $348 a year with very simple tricks.
You can check the details here:
What to do with extra $348 a year?
My ultimate goal is financial freedom. Having the ability to retire early and live off my investments means a great deal to me. So it does make sense that I put the extra cash to work towards my early retirement goal.
Most of my investments are individual stocks. Out of those stocks, the majority are dividend paying stocks and I only keep around 20% of my portfolio in ETFs.
So let’s run a few simulations and start off from a base scenario. I am a stock market investor and I am adding 1000$ every month to my portfolio. For the sake of this example, I had $5000 in funds ready to invest.
The base scenario
Timeframe: 25yr; Initial Amount: $5000; Annual Addition: $12000; Growth: 10% per year;
After 25 years of sticking to the plan and assuming an average gain of 10% a year (which is the average return of S&P500), I would end up with $1,352,354.71
For simplicity, let’s not take into account any fees or taxes over the time period. Obviously, for more accurate results, I would have to take that into account but that is not the purpose.
Scenario #1
Now let’s add our magic number of $348 a year and check out the difference.
Timeframe: 25yr; Initial Amount: $5000; Annual Addition: $12348; Growth: 10% per year;
With the addition of our savings every year, I can end up with $1,390,001.97. This translates into a $37,647.26 gain over my initial scenario.
Crazy how cat food savings can turn into almost $40k!
Scenario #2
$348 extra a year is an odd amount right. So why not round it up and make it $500. I suppose adding an extra of $152 in a year is very much possible by skipping a 1 or 2 dinners out that month.
Timeframe: 25yr; Initial Amount: $5000; Annual Addition: $12500; Growth: 10% per year;
Here the surprise is not so impressive but still interesting. The final result would be $1,406,445.60
It represents an extra $16,443.63 over scenario #1 with almost no effort. In my perspective, it is still quite some money and it is enough today to cover the costs of a master’s degree(at least a public one)! So definitely worth it!
Scenario #3
Let’s wrap it up with a more challenging scenario. Instead of rounding up to $500, we make one extra payment of $1000 a year (or an extra ~$84 a month) plus our savings of $348.
Timeframe: 25yr; Initial Amount: $5000; Annual Addition: $13348; Growth: 10% per year;
With no surprise, an extra $1000 brings the gain to the six digits level. It might be harder to achieve but with enough focus every month it is possible. Final amount would be $1,498,183.73
This is $145,829.02 more than our base scenario!
The best way to understand how little money can compound over 25 years is to work over simulations. Playing with the numbers can quickly demonstrate the power of investing discipline and time.
I hope my very innocent example can be a motivation to all of you. Were you surprised by the numbers as I did? Let me know in the comments below.
If you like my content, please check my other stories:
Disclaimer: I am not a financial advisor. Always do your own research when investing.
