How Much Money Will You Have in 30 Years?

by Darren Wu on 26 November 2013 0 comments

For some of us, it's hard to know how much money we'll have a month from now, let alone 30 years from now. Yet, if you're planning your dream retirement, or even for your child's college fund in the nearer term, you've got to make some educated guesses. And that's not always easy. (See also: What Is Your Retirement "Number"?)

Fortunately, Rick Ferri, investment expert and author of six books on the subject of investing, has taken a lot of the guesswork out of this process. He's done extensive research to provide a forecast of stock and bond market returns for the next 30 years.

Of course, it's important to remember that this is just a forecast and not a guarantee. Still, as humans, it's inspiring to think about what our future could look like. And taking action by investing always beats not taking action. (See also: Mutual Fund Basics to Start Your Investing Career)

The thing that's different about Ferri's forecast, as opposed to someone else's, is that he does it every year. That means he takes into account changes to the factors that affect the return forecast, such as fiscal and monetary policy. This gives you the most accurate, up-to-date forecast possible.

So without any further delay, let's look at the forecast.

The 30 Year Forecast

Looking at the middle of the three columns filled with numbers, we see that U.S. large-cap stocks, which are stocks of companies worth more than $10 billion, are expected to grow by 7.4% over the next 30 years.

However, experts don't suggest putting all your money in the stock market. That's because your money is likely to see wide changes in value as it rides along the ups and downs of the stock market.

Instead, to lower your chances of seeing this happen, experts also suggest investing in bonds. So looking at the same middle column, if you were to invest in U.S. Treasury notes, you can expect your money to grow by about 3% over the next 30 years as well.

If you'd like an example of specific stock and bond funds that you can invest in, check out the Core Four Portfolio.

The S&P 500 is the most widely used representation of U.S. large-cap stocks. That means if you invest in an S&P 500 index fund, you can expect your money to grow by about 7.4% over the next 30 years as well. (See also: How to Get Started in the Stock Market With Index Funds)

Dollars and Percents

Now let's say you decide to split your money by putting 60% of it in stocks and 40% in bonds, which is considered by experts to be an appropriate amount of risk to be taking over the long-term. Combined, your money would grow at the rate of 5.6% every year. Here's the math behind it: (7.4% x 60%) + (3% x 40%) = 5.6%. You can also do this for whatever stock and bond split you choose simply by changing the percentages.

How about in dollar terms? If you invest just $1,000 each year, in 30 years you can expect to have over $78,400 — more than doubling your money.

Getting Yourself Started

You can begin with a retirement account that most employees already have — the 401(k). In 2013 and 2014, most of you can invest a maximum of $17,500. (See also: How to Make the Most of Your 401(k))

So let's say your 401(k) plan has index funds that track these assets, and that you invest the maximum each year. Doing this, you can expect to have over $1,372,000 to your name before taxes by the time you retire in 30 years. To verify the math, here's the formula, which is known as the Future Value of an Annuity Due: (1 + .0564) X $17,500[((1 + .0564)^30 - 1)/.0564]

(Note that .0564 is the combined expected return from Ferri's forecast above; $17,500 is the yearly contribution; and, 30 is the number of years. Substitute your own values for your personal calculation.)

You can also plug this formula into an Excel spreadsheet: =FV(0.0564,30,-17500,,1)

In addition to this, you may also be able to invest in a Roth IRA. In 2013 and 2014, most of you can invest a maximum of $5,500. (See also: Why a Roth IRA May Be Better Than Your 401(k))

Again, let's say you invest in index funds that track these assets. Let's also say you invest the maximum each year.

Doing this, you can expect to have over $431,000 to your name by the time you retire. Again, to verify the math, here's the formula: Future Value of Annuity Due = (1 + .0564) X $5,500[((1 + .0564)^30 - 1)/.0564]

Or just plug this formula into an Excel spreadsheet: =FV(0.0564,30,-5500,,1)

Not as much as with a 401(k), but the good thing about the Roth is that it's tax-free — ALL the money is yours.

By starting to invest a little bit now, you can build a nice amount of wealth for yourself later.

So how much money will you have in 30 years? Do the calculation and let us know in comments!

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