Author Topic: Do investments in S&P 500 really double every ~7 years?  (Read 1215 times)

J.P. MoreGains

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Do investments in S&P 500 really double every ~7 years?
« on: May 23, 2024, 07:42:09 AM »
A friend recently told me that investments in the S&P 500 typically will double every 7 or so years.

This seems too good to be true... is this really the case?

So investing in a low fee S&P 500 index fund has a lot of potential benefit.

I'm new to this so could someone correct me if I'm wrong:

Investing in an S&P 500 Index Fund is like investing in a statistical representation of the 500 largest US companies. As these companies grow your investment grows and your investment is spread across those 500 companies in proportion to their value.

VTSAX is a favorite I hear a lot about... does that also have the same or nearly the same doubling potential?

VTSAX is similar to an S&P 500 index fund but the difference is it is a statistical representation of the US Economy and diversifies more by including investments in smaller companies not represented in the S&P 500. It also represents investing proportionally in different sectors of the US economy.

This seems like a middle school book report but I guess that is my level.

Right now I'm 44 and should be at 200k by July... but I'm mostly invested in "Target 2045" funds.

I've been thinking since my expenses are low and since I'm a bit of a minimalist to move more toward S&P 500 / VTSAX plus an international index fund.

It's kind of hard to believe that my 200k could be 400k in 7 years! I really want to hustle over the next few years and let it grow.

Any feedback is welcome since my focus is more on the earn it side than the know all the details about investing side (which is why I'm in the Vanguard target 2045 fund)


Paper Chaser

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #1 on: May 23, 2024, 08:09:20 AM »
Yeah, The Rule of 72 approximates this based on historical returns. If you're actively making contributions and/or you get better than average returns it can double in less time.

MustacheAndaHalf

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #2 on: May 23, 2024, 08:29:38 AM »
In practice it varies - there are 14 year periods without doubling, and then there's 2019-2021 where the market doubled in 3 years.  But on average, stocks earned 10.55%/year since 1972, which works out to doubling every 7 years.

Before you get too optimistic, ask yourself if you like it when people steal your money.  When you have $5,000 and someone robs you of $2,000... because that's what the stock market feels like.  It feels like a robbery, with the money just gone.  To brace for that, I think investors should look at data on past crashes and recoveries.

dandarc

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #3 on: May 23, 2024, 08:39:41 AM »
Remember to reinvest dividends if you want to approach that performance. And of course doubling in 7 years is average / typical, but no guarantees at all and there's a lot of variation.

In a 2045 fund, you're probably fairly close to your proposed portfolio anyway - should be about 85% stocks to 15% bonds, but that allocation will shift towards more bonds as time goes on. Maybe that would be expected to double in 10 years instead of 7. Bonds smooth the ride at the price of a lower expected return (see @MustacheAndaHalf for why you might want to do that).
« Last Edit: May 23, 2024, 08:41:34 AM by dandarc »

vand

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #4 on: May 23, 2024, 08:46:41 AM »
Nominally it has done so over long timeframes. In real terms takes more like 10-11 years.
« Last Edit: May 23, 2024, 08:49:20 AM by vand »

J.P. MoreGains

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #5 on: May 24, 2024, 07:22:45 AM »
Thanks everyone for the replies... much appreciated.

This kind of confirms what I was thinking and is good news.

So nothing is guaranteed of course... but historically speaking that has been the performance. Which is good news to me.

I am reinvesting dividends and I'm putting over 7k of new money in each month as long as my second job holds out for a few more months.

Sounds like maybe the 2045 funds aren't a bad play either.

I'm really glad I found MMM I wasn't really aware of how investing works all together. I definitely want to learn more but for now I'm just saving as much as I can to invest in index funds and then keeping my expenses low.

It's pretty amazing to me that it's possible to double the amount of money I have! If I just keep putting money in over the next few years I'll be in a good spot.
« Last Edit: May 24, 2024, 07:24:19 AM by J.P. MoreGains »

neo von retorch

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #6 on: May 24, 2024, 08:28:19 AM »
With a good savings ratio, it will be faster than 7 years, but in the background, the investment returns will really help.

Starting in 2011 (end of year) here was my net worth:

2011   1x
2012   1.6x
2013   2.1x
2014   3.1x
2015   4.1x
2016   5.3x
2017   7.7x
2018   8.9x
2019   11.4x
2020   13.8x
2021   17.0x
2022   15.4x
2023   19.0x
2024   23.0x (so far)

Early on my net worth was doubling every 2-3 years. Now it's growing at a much larger absolute pace, but doubling takes longer. (Still, we're not yet halfway through 2024, and I'm past 2x the end of 2019...)

2Birds1Stone

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #7 on: May 24, 2024, 08:58:16 AM »
Thanks everyone for the replies... much appreciated.

This kind of confirms what I was thinking and is good news.

So nothing is guaranteed of course... but historically speaking that has been the performance. Which is good news to me.

I am reinvesting dividends and I'm putting over 7k of new money in each month as long as my second job holds out for a few more months.

Sounds like maybe the 2045 funds aren't a bad play either.

I'm really glad I found MMM I wasn't really aware of how investing works all together. I definitely want to learn more but for now I'm just saving as much as I can to invest in index funds and then keeping my expenses low.

It's pretty amazing to me that it's possible to double the amount of money I have! If I just keep putting money in over the next few years I'll be in a good spot.

Target date funds are typically inferior to just picking an asset allocation and using Stock/Bond ETF to meet your goals.

Just FYI.......as far as the math and projections.....there's a ton of compounding calculators that allow you to factor in contributions on top of a projected ROI.......but no one knows the sequence of returns, inflation, etc in any sort of predictable manner so it's all just fun and games.

J.P. MoreGains

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #8 on: May 24, 2024, 09:51:37 AM »
Yeah, I've been going with target date funds due to not knowing that much. Hoping to change that.

I currently have some S&P 500, some VTSAX, an international index as well. Also a bonds fund through Vanguard.

But have been opting for more 2045 funds with my work 401k and 457b. Plus when I have been contributing to my roth it's been into a 2045 fund.

So maybe I reexamine this soon. Plus eventually I want to talk to a tax professional about optimization there.

Also I have to say that the first big loss will be painful... for example I'm about to hit 200k. If there are big losses and I go below 200k that would hurt some but I have to be ready for it.

Morning Glory

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #9 on: May 24, 2024, 10:07:41 AM »
I thought it was ten years, but maybe that is if you account for inflation??? Either way it is only an average.

Remember you don't gain or lose anything until you sell your shares. The value going up and down is meaningless unless you are planning to sell soon.

Chris Pascale

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #10 on: May 24, 2024, 10:33:33 AM »
Looking at my 403b, I have an avg return the last 5 years of 11%. Don't have more data because I started the account 5 years back.

daverobev

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #11 on: May 24, 2024, 11:18:54 AM »
There's no guarantee. There's nothing to say the US will keep growing faster than the rest of the world (there are lots of reasons for, and lots of reasons against, this happening). There are 'lost decades'. The US is now expensive by pretty much all metrics. That doesn't by itself mean anything, because growth can move one side of the equation.

There is no 'typically'.

I mean, look - https://g.co/finance/.INX:INDEXSP?window=MAX ~ 750 at the end of 1996. 2003, 2010, 2017, 2024 - that would be 4 doublings -> 1500, 3000, 6000, 12000. Nowhere near that number.

Start of 2009 - 13 years after that chart starts - the index hadn't gone up at all!

Now, this isn't including dividends, but still.

Heckler

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #12 on: May 26, 2024, 09:42:32 AM »
There's no guarantee. There's nothing to say the US will keep growing faster than the rest of the world (there are lots of reasons for, and lots of reasons against, this happening).

https://www.callan.com/periodic-table/

Always my favorite visualization of this fact. The S&P 500 is shown as blue (Large Cap Equity)

  "The Periodic Table of Investment Returns depicts annual returns for key asset classes, ranked from best to worst performance for each calendar year."

Heckler

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #13 on: May 26, 2024, 10:03:36 AM »

VTSAX is similar to an S&P 500 index fund but the difference is it is a statistical representation of the US Economy and diversifies more by including investments in smaller companies not represented in the S&P 500. It also represents investing proportionally in different sectors of the US economy.

A holding of VTI (which is the ETF equal to VTSAX) built up over 7 years with $C 122,000 of pre-tax contributions to a tax deferred account was valued at $C 123,305 on June 1, 2020.  The owner stopped contributions on June 30, 2020.  Today it is valued at $C 292,000.  All but $U 1,700 of dividends were reinvested, with no withdrawals. 

Note the total values are in Canadian Dollars with the exchange rate at the time.  The contributions were made to a $C S&P 500 index fund, then converted to VTI annually.

The last four years (2.4x before tax) have been a little silly.  Buy and hold works though.

Heckler

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #14 on: May 26, 2024, 10:10:53 AM »

VTSAX is similar to an S&P 500 index fund but the difference is it is a statistical representation of the US Economy and diversifies more by including investments in smaller companies not represented in the S&P 500. It also represents investing proportionally in different sectors of the US economy.

A holding of VTI (which is the ETF equal to VTSAX) built up over 7 years with $C 122,000 of pre-tax contributions to a tax deferred account was valued at $C 123,305 on June 1, 2020.  The owner stopped contributions on June 30, 2020.  Today it is valued at $C 292,000.  All but $U 1,700 of dividends were reinvested, with no withdrawals. 

Note the total values are in Canadian Dollars with the exchange rate at the time.  The contributions were made to a $C S&P 500 index fund, then converted to VTI annually.

The last four years (2.4x before tax) have been a little silly.  Buy and hold works though.

Note this VTI holding is only a portion of a globally balanced portfolio with 30% fixed income and the rest "international" though!  Due to the Callan Periodic table, your Vanguard Target Date fund is perfectly diversified, and will also increase fixed income as you get closer to the target.

https://investor.vanguard.com/investment-products/mutual-funds/profile/vtivx#portfolio-composition

PS, if anyone cares to challenge my cherry picking of dates, it's not chosen due to pandemic lows, it simply corresponds to the planned date to stop contributions to that account. 
« Last Edit: May 26, 2024, 10:13:24 AM by Heckler »

J.P. MoreGains

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #15 on: Today at 03:21:03 PM »
Yeah, nothing is guaranteed. But... it costs more to not invest and not even try. I feel good now that I'm at least working toward FI and making progress.

Hopefully there are some strong years ahead.

It's all a good lesson in fear and doubt.

Psychstache

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Re: Do investments in S&P 500 really double every ~7 years?
« Reply #16 on: Today at 04:01:27 PM »
With a good savings ratio, it will be faster than 7 years, but in the background, the investment returns will really help.

Starting in 2011 (end of year) here was my net worth:

2011   1x
2012   1.6x
2013   2.1x
2014   3.1x
2015   4.1x
2016   5.3x
2017   7.7x
2018   8.9x
2019   11.4x
2020   13.8x
2021   17.0x
2022   15.4x
2023   19.0x
2024   23.0x (so far)

Early on my net worth was doubling every 2-3 years. Now it's growing at a much larger absolute pace, but doubling takes longer. (Still, we're not yet halfway through 2024, and I'm past 2x the end of 2019...)

Interesting analysis. I only have data back to 2014, but mine is:

2014   1x
2015   1.3x
2016   1.56x
2017   2.27x
2018   2.28x
2019   2.77x
2020   3.49x
2021   4.34x
2022   3.49x
2023   4.67x
2024 4.96x as of April 2024.

Couple of bumps in there due to life getting in the way of stashing, and things looks less impressive due to the higher base from when i starting tracking my data. Based on my estimates if I could use my '12 Stache as a starting point I would be at around 13x right now.

Note: data represents the investment stache. NW data is way more up and to the right, but that is mostly due to well timed home purchase and bonkers RE market.