Can you be well off following an index?

[sv2007]

I wonder, if a person can be well off (e.g. retire early and have desired lifestyle) if she invests only in a index fund. If she invests $3k/month into the SP500 index for the past 20 years, she'll get about double her money (this includes dividend re-investment):

Amount put in: $714k
Value: $1.48m
Inflation loss: $224k

$3k/month = $36k/yr, that's not too aggressive. So, let double that to $72k/yr, which is probably on the aggressive side for the average person.

So, after 20 years, this person only has about $3m to show for. And this is 100% "aggressive" investment, i.e. for cash flow purposes (and avoid selling during market crashes, for example) probably not all are going to be put here.

$3m after 20 years... is that good?

[corn18]

Well, depending on who you ask, index funds beat actively managed funds 60% to 90% of the time. Since I don't have time nor interest in trying to figure out which ones beat an index, I go with the numbers and let it ride. Besides, I hate giving someone else money to suck.

[sv2007]

Tom, you're up late.

I'm thinking. If it weren't for our self-managed investments with individual stocks and real estate, we probably wouldn't be able to retire early. Our money doubled within 5-10 years, i.e. beating SP500 by a long shot.

If our investments return similar to my 401ks, then early retirement will not be achievable.

Sometimes, I think it is a rat race. If everybody buys SP500 then nobody wins because everybody will have the same returns and suffer inflation or whatnots. So, in order to rise above, one has to beat everybody else.

[corn18]

Tom, you're up late.

I'm thinking. If it weren't for our self-managed investments with individual stocks and real estate, we probably wouldn't be able to retire early. Our money doubled within 5-10 years, i.e. beating SP500 by a long shot.

If our investments return similar to my 401ks, then early retirement will not be achievable.

Sometimes, I think it is a rat race. If everybody buys SP500 then nobody wins because everybody will have the same returns and suffer inflation or whatnots. So, in order to rise above, one has to beat everybody else.

You're probably right. The definition of index investing is average. My investments are so boring that I rarely look at them anymore. I also don't fret over them much. That fits me perfectly. I take all my risk in my career. That is not boring and the pay is above average. Now, if I could find a way to take my above average pay and mate it up with above average returns, I would be all set.

[Singuy]

I wonder if inflation loss is overly exaggerated. I don't know if goods are indeed 2.5% more expensive yearly considering technology, automation, efficiency and cheap labor really suppressed the increasing cost of goods.

Many household items are actually MUCH cheaper than say 20 years ago....pretty much any electronic you touch is much cheaper. Furniture prices didn't go up all that much either.

I see Aldi selling eggs for 49 cents, blueberries at 99 cents. The dollar store not only never increased their price, they actually increased the amount of goods in such store. Just shop around and you'll find 1990 prices.

Perhaps rent, houses, and cars are the only thing that follows a true inflation price increase.

[Nutria]

$3k/month = $36k/yr, that's not too aggressive. So, let double that to $72k/yr, which is probably on the aggressive side for the average person.

Seeing that the median US family income is $51,759 (as of Sept 2014), that's the most delusional thing I've read since Donald (I hire cheap Romanians to work at my South Florida resort) Trump wrote, "I'm fighting for Americans. All Americans."

[DaveInPgh]

Seeing that the median US family income is $51,759 (as of Sept 2014), that's the most delusional thing I've read since Donald (I hire cheap Romanians to work at my South Florida resort) Trump wrote, "I'm fighting for Americans. All Americans."

Pretty much everything he posted yesterday was delusional.

[greenskeeper]

If you investing the S&P 500 back in 1986 and stayed in it for 30 years to 2016 your return would have averaged 7.489%

https://dqydj.com/sp-500-return-calculator/

[Nutria]

If you investing the S&P 500 back in 1986 and stayed in it for 30 years to 2016 your return would have averaged 7.489%

And if you started 15 years ago, the annualized return would be 3.35%. Ditto(ish) for 9 years ago.

[TexasHusker]

As mentioned, index funds deliver average returns. A 7.5% annual return wouldn't be acceptable to me personally. There's nothing magical about $3 million or any other dollar figure.

I view index funds as especially risky - the risk being that the returns are so paltry that you've worked and saved your whole life for a whopping $3K a month.

And "well off" is a subjective term. $3K a month income would be stupid rich for 95% of the world's population, but in the US I don't know. It all depends upon what you consider well off.

[DaveInPgh]

And "well off" is a subjective term.

Exactly.

The OP makes generalizations based on the vacuum he lives in. He is totally oblivious as to how other people live and that where you live is a huge factor in "well off."

I would live a very comfortable life on $3 million.

[greenskeeper]

And if you started 15 years ago, the annualized return would be 3.35%. Ditto(ish) for 9 years ago.

This was about investing for retirement so I used 30 years as an average time to be in the market.

[corn18]

So, there is a dead simple way to get average returns. I also found a way to get below average returns: guessing. The guess might be what I think is going to go up or timing the market. Doing that without research has resulted in some winners and more losers. So, I determined if I am going to do better than average, then I will need to be above average in my knowledge. How do I become above average? Considering 80% of the professionals are below average, I have a feeling I can't be above average. At least not in the equities markets.

[Like2Plan]

A long time ago before I became aware of Index funds, I noticed that managed mutual funds always compared their returns to an index and they rarely did as well. I thought, why not just buy the index itself?

It took me a while, but I finally found Vanguard. I gave up most of the individual stocks. (Down to one each for DH and I )

[Nutria]

This was about investing for retirement so I used 30 years as an average time to be in the market.

No one (well, approaching 0%) invested all of their retirement nest egg that early in their career.

For example, a family that grossed $60K -- a respectable income back then -- with 6% 401(k) deductions and a 25% match invested only $4,800.

In the years since (for example, when their gross income was $120K in 2001), they invested a lot more than that, and that money will have yielded much less.