Most investors know that in the long run, the S&P 500 logs an average annual gain of about 10% per year (although some years are much better than others). But what does that mean in more tangible terms?
Let’s assume you invested $5,000 in the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) — both meant to mirror the popular index — at this time of year back in 2011. If you hadn’t reinvested any dividends paid in the meantime, that holding would be worth $30,500 today, give or take. And if you had been reinvesting its dividends in more shares of VOO or SPY, the position would be worth $39,980.
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The latter of those amounts translates into an average yearly gain of just under 15%, handily topping the long-term norm. Just bear in mind that the past three years have been unusually bullish, and the stimulus-driven bull market emerging from the COVID-19 pandemic was uncharacteristically strong as well. Given enough time, this ETF’s annual performance will almost certainly ease back to its longer-term average.
Still, even with more typical gains from the index and any funds meant to mirror it, a $5,000 investment logging net average gains of 10% per year would be worth nearly $21,000 in 15 years. The stock market’s still the best game in town for achieving wealth-building growth that outpaces inflation.
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