As we discuss retirement savings, one aspect that is worthy of consideration is the weighing of alternatives. Hindsight is always 20/20, but let’s consider the cost of a spent dollar throughout the years. Essentially, if you had $X in a given year, what is something that you could have purchased during that year compared to what would that $X have turned into had you invested it instead. Putting money into an investment account is not as fun as going on a Royal Caribbean cruise to Bermuda, but what if?
First, we are going to assume that “investment in the market” means an investment in the S&P 500, reinvesting dividends, and no investment costs. The S&P 500 is a weighted index of the 500 largest U.S. publicly traded companies, and it is commonly used as a measure of the “market” as a whole. Note that solely investing in the S&P 500 is not a well-diversified investment strategy as it does not give you any exposure to small or mid-cap U.S. stocks, international or emerging market stocks, bond markets, or real estate – but for the sake of playing ‘what if?’ this makes the math easier.
Next, these are dollar-for-dollar numbers, not inflation adjusted, so $1,000 back in 1988 meant a lot more than $1,000 today. Finally, for the sake of having complete full-year data, all of the following potential investments are shown as of December 31, 2020. So, put on your leg warmers and Members Only jackets and let’s take a fun trip down memory lane.
2015 – Hit the links. Play like the pros. Grab that TaylorMade R15 driver and split the fairway. It would have set you back $430, but wow! You hit the ball so much further! Had you kept your old driver and invested that price instead, you could have had $885.18 by the end of 2020.
2012 – Warm sun, cool drinks, beautiful views. You and your significant other could have taken a 5-night Royal Caribbean cruise to Bermuda for $1,200. You would have missed out on the suntan, but an equal investment at that time could have been worth $4,313.00.
2009 – Home décor: imagine an 86” Jasper microfiber suede sofa in your living room. So plush, so comfortable. It could have been yours to sit on for $900. Alternatively, by investing that money instead, you could have been sitting on $4,806.03.
2007 – January 9, 2007: Steve Jobs and Apple changed the world with the announcement of the first iPhone. For a cool $600 you could have owned the first true smartphone as we know them today (the big 8GB model, too!). Alternatively, an investment of the same amount could have been worth $2,129.35.
2004 – Get outside and ride! For around $300 you could have been tearing up your neighborhood streets or local trails on a Mongoose 21 speed bicycle. At the same time, an investment of the price instead could have turned into $1,434.03.
2000 – Flat screen TVs are all the rage. Imagine a 53” Sony wall mounted for movie night. It would have set you back about $2,300, but hey, you’re looking at a flat screen TV! Or, had you invested that money instead, you could have been looking at $8,826.78.
1997 – Time to get in shape. I’m talking about the ProForm Treadmill. For around $700 you could have been training for the Bluegrass 10k inside your own home. Or, if you decided to jog outside and invested that cash, your investment could have run up to $5,575.71.
1994 – Ace of Base, Mariah Carey, Bryan Adams, and John Mellencamp are lighting up the Billboard Hot 100 singles, and you need a way to listen to their CDs at home. Enter the Sony 100-watt 5CD changer. For $800 you could have been singing along with Bruce Springsteen on the soundtrack to Philadelphia, or you could have invested it instead and ended up with $10,922.11.
1991 – *Ring-Ring* What’s that sound? It’s your AT&T cordless telephone – with answering machine – and it only set you back $200. However, an investment of the same amount at the time could have turned into $4,220.45.
1990 – Home computing is booming. For $800, you could have been the proud owner of a high-tech Tandy 1000 RL personal home computer, with full color monitor! Alternatively, an investment of the same amount could have been worth $16,358.46.
1988 – Birthdays, vacations, holidays: “Dad, go get the camcorder.” For right around $1,000, you could have been filming home movies on an RCA VHS Camcorder. The memories are priceless, but you can put a dollar figure on what an investment could have grown to. Had you invested $1,000 in 1988, your money could have grown to $31,400.83 by the end of 2020.
The point of all of this is not to tell you to never spend money to buy things or to go have fun. Rather, the point is to highlight that it is never a bad time to save for retirement. Whether you have a lot or a little to save, over time your investment can grow into something bigger.
Obviously, there are up years (see +37.58% in 1995) and down years (see -37% in 2008). Sometimes there are multiple down years in a row (see 2000 – 2002: -9.1%, -11.89%, and -22.1% respectively). However, over the long-term, the stock market tends to trend upward. Since its inception in 1928 and through the end of 2020, the average annualized return for the S&P 500 index is right around 10%. Adjusted for inflation, that becomes around 7%.
So again, go buy that camcorder, go on that vacation – just keep in mind that you should be saving and investing some for the future as well. No matter what your time horizon may be, the more you save towards your retirement today, the happier your retirement-age self will be with your current-age self. If you would like to talk about saving for retirement, whether you are just getting started in your career or are getting closer to retirement, we would be honored to help.
- YCharts; S&P 500 Annual Total Return; https://ycharts.com/indicators/sandp_500_total_return_annual
- Morris County Library; Historic Prices; Daily Record, Morristown, New Jersey Newspaper; https://mclib.info/reference/local-history-genealogy/historic-prices/
- Maverick, J.B.; What Is the Average Annual Return for the S&P 500?; Investopedia; Updated June 1, 2021; https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp