A Story of a Woman’s 30-Year Investment Journey
Meet Sarah, a 25-year-old marketing executive who decided to take control of her finances early on in her career. We will be using Sarah as a case to discuss investing 20% of your income and how that turns out for her.
Sarah understood that investing was an essential part of building long-term wealth, and so she began investing 20% of her annual income into the S&P 500 index fund, a popular, basic, low-cost, indexed investment vehicle that tracks the performance of the 500 largest publicly traded companies in the United States.
As you are reading this story, perhaps use a simple compound interest calculator like this one here to see how investing 20% of your income works out for you.
At the time, Sarah’s annual salary was $60,000, which meant that she was investing $12,000 each year. She had a long-term investment horizon and understood that the S&P 500 was a relatively safe and reliable investment option, with an average annual return of around 10%.
Sarah’s Yearly Accumulation:
Sarah started investing in 1993 and continued investing 20% of her income every year for the next 30 years until her retirement in 2022.
Over the years, Sarah’s investment in the S&P 500 grew significantly, as shown in the table below:
As it turns out Sarah never progressed and never got a significant pay rise. Nevertheless, her outcome is worth looking at.
| Year | Annual Investment | S&P 500 Return | Year-end Balance |
| 1993 | $12,000 | 10.08% | $13,236 |
| 1994 | $12,000 | 1.32% | $24,961 |
| 1995 | $12,000 | 37.58% | $48,424 |
| 1996 | $12,000 | 23.06% | $76,366 |
So that was the first 4 years …. let’s keep looking at what happened in the subsequent years.
| Year | Annual Investment | S&P 500 Return | Year-end Balance |
| 1997 | $12,000 | 33.36% | $122,209 |
| 1998 | $12,000 | 28.73% | $175,313 |
| 1999 | $12,000 | 21.04% | $237,735 |
| 2000 | $12,000 | -9.10% | $245,458 |
| 2001 | $12,000 | -11.89% | $229,214 |
| 2002 | $12,000 | -22.10% | $183,893 |
| 2003 | $12,000 | 28.68% | $246,236 |
| 2004 | $12,000 | 10.74% | $279,609 |
| 2005 | $12,000 | 4.83% | $313,312 |
| 2006 | $12,000 | 15.61% | $376,683 |
| 2007 | $12,000 | 5.49% | $420,200 |
| 2008 | $12,000 | -37.00% | $305,395 |
| 2009 | $12,000 | 26.46% | $400,507 |
| 2010 | $12,000 | 15.06% | $476,180 |
| 2011 | $12,000 | 2.11% | $496,470 |
| 2012 | $12,000 | 16.00% | $593,326 |
Sarah was tempted to stop investing at this point but was encouraged by her mentor to keep investing for another year – 2013 was an excellent year …..
| Year | Annual Investment | S&P 500 Return | Year-end Balance |
| 2013 | $12,000 | 32.39% | $822,280 |
So, Sarah just kept going …. she stayed the course.
| Year | Annual Investment | S&P 500 Return | Year-end Balance |
| 2014 | $12,000 | 13.69% | $926,287 |
| 2015 | $12,000 | 1.38% | $952,610 |
| 2016 | $12,000 | 11.96% | $1,103,067 |
| 2017 | $12,000 | 21.83% | $1,367,616 |
| 2018 | $12,000 | -4.38% | $1,284,810 |
| 2019 | $12,000 | 31.49% | $1,838,643 |
| 2020 | $12,000 | 16.26% | $2,112,562 |
| 2021 | $12,000 | 28.71% | $2,862,325 |
| 2022 | $12,000 | 21.68% | $3,463,126 |
As you can see from the tables above, Sarah’s investment in the S&P 500 grew significantly over the years, despite occasional downturns and market fluctuations.
Her investment portfolio’s value rose to over $3.4 million by the time she retired in 2022, thanks to the power of compounding and long-term investing.
In addition to her yearly accumulation, Sarah also received dividends from her investment in the S&P 500.
According to historical data, the average dividend yield for the S&P 500 over the past 30 years has been around 2%.
Assuming Sarah reinvested all her dividends back into the S&P 500, her total return would have been even higher.
How Investing 20% of Her Income in the S&P 500 Changed Sarah’s Life
Sarah’s investment in the S&P 500 was a significant contributor to her retirement nest egg. By investing 20% of her income each year, Sarah accumulated over $3.4 million by the time she retired at age 55, which allowed her to retire comfortably and enjoy her golden years without financial stress.
It’s important to note that investing in the S&P 500 index fund is not a get-rich-quick scheme. It takes patience, discipline, and a long-term investment horizon to reap the benefits of compounding and market growth.
Sarah’s story shows that investing just 20% of your income in a diversified investment vehicle like the S&P 500 can be a powerful tool for building long-term wealth.
Investing in the stock market carries risks, and past performance is not a guarantee of future returns. However, historical data shows that the S&P 500 has delivered an average annual return of around 10% over the past century, making it a popular choice for long-term investors.
In conclusion, Sarah’s investment journey is an inspiring example of how a simple strategy like investing 20% of your income in the S&P 500 can pay off significantly over the long run.
By starting early, investing consistently, and staying committed to her long-term goals, Sarah was able to accumulate significant wealth and retire comfortably.
It’s a lesson – right there. That’s how investing 20% of your income in the S&P 500 can change your life.
Cheers
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