The Snowball Effect: Turning $5,000 a Year Into Nearly $1 Million
March 12th, 2019 | Posted in Uncategorized
It may not take special stock-picking skill for an investor to turn $5,000 a year into nearly $1 million in their lifetime, according to Ron Baron, billionaire founder of Baron Capital.1,2,3
“It’s all about compounding,” he says in a recent CNB article. Baron calculates that “if you invest $5,000 a year for 30 years … it’s worth $890,000,″ based on historical stock market returns.
On a shorter time horizon, he says that the strategy would yield $110,000 in a decade. “If you do it for 20 years, it’s worth $250,000.”
Stock-Picking Savvy Not Needed
Baron himself specializes in identifying companies he believes are undervalued, but he insists individual investors don’t need to be astute stock pickers. “The simplest thing for people to do is buy an index fund.”
Baron bases his estimates on the historical correlation between the economy and the stock market. And while admitting it wouldn’t all be smooth sailing, he thinks the U.S. economy has proven its resilience over the long haul.
It’s Never Been Easier to Benefit from Compounding
With the advent of robo advisors, it may be easier than ever for individuals to take advantage of the stock market’s potential to generate wealth over the long term. In minutes, investors can create a portfolio that takes into account their goals and risk tolerance, then set up an investment plan that allows them to add to their account at regular intervals over time.
And while there are no guarantees such a plan will lead to a million dollar balance, investors who persevere through decades of ups and downs have the potential to generate impressive returns.
Learn more about how Zacks Advantage combines the simplicity and low fees of a robo advisor with performance-focused active management. Download our Overview Guide today!
2 Zacks Investment Management is not affiliated in any way with Ron Baron and/or Baron Capital.
3 The performance results discussed herein are back-tested. These results were achieved by means of the retroactive application of a model that was designed with the benefit of hindsight. Thus, the performance returns noted should not be considered indicative. Moreover, an investment inherently involves a high degree of risk. There is no assurance that you will achieve your investment objectives.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss
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