Key Points

  • Investing in the S&P 500® Index for the past 95 years could have lead to considerable gains for even the novice investor.
  • When it comes to investing, time is our greatest friend.

One Lifetime of Wealth

Let’s consider a scenario that is slightly more realistic than the one used in Part 1. This time, we’ll use data from the S&P 500® Index since its inception in order to highlight why investing over long periods can have tremendous benefits.

The Standard & Poor’s 500®, often abbreviated as the S&P 500®, or just the S&P,[6][7] is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ.

We have data for this index going back to 1923, so let’s see how much $100 invested in 1923 would be worth today. Note, $100 in 1923 has the same buying power as about $1,500 today when adjusted for inflation. However, hypothetically if your great-great-great grandfather had put this amount away in an investment account for you it would be worth over a million today, or $1,254,083 to be more exact. This is after reinvesting all gains back into the index, allowing the gains to compound on each other, and without any additional fees as well. Thus, Investing Forever has its benefits, but compound interest can even provide great benefit over a single human lifetime.

Imagine for a second what benefit you could provide for your great-great-great grandson by doing something similar. Instead of buying that brand new $1,500 iPhone, you could hold onto that beat up phone for a few extra years, and make one luckily ancestor a de facto millionaire (in today’s dollars, no less) after just waiting 95 years for that initial investment to grow at mature.

Of course, there are many assumptions baked into this hypothetical scenario as well. First and foremost, the market has to perform as well in the next 95 years as it did in the last 95 years. And as we all know, past performance does not guarantee future results. In the next installment of this series, we’ll look at a more realistic time frame, such as one covering the average investing lifespan for an individual.

Nevertheless, this notion of “paying forward” wealth should have strong appeal to not just individuals, but society as a whole. Imagine if we as society decided to invest in our future generations buy providing them with access to wealth that had compounded for a hundred years. Many governments around the world have figured this out, which is why they have Sovereign Wealth Funds. For example, Norway (population: 5,302,778) has over one trillion dollars in its Sovereign Wealth Fund, which is enough to provide prosperity for its future generations and then some.

Sadly, here in the United States, we have instead opted for what I call our Sovereign Debt Fund (A.K.A, our National Debt), to the tune of negative 21 trillion dollars. But this is all for a topic of a future post, which we’ll unpack at some point down the road. For now, we’ll leave with the understanding that great wealth can be manufactured with just one simple ingredient, time.