Over on Moolanomy is an article titled The First Million is the Hardest. In the post, the coolest fact is that while the first million dollars takes a long time to make, once you have it, additional millions come faster and faster. While this will not come as a surprise to anybody that is familiar with the miracle of compound interest, the example was a simple one. The biggest simplification was in assuming constant contributions and a constant growth rate (10%).

As I enjoy playing with numbers, I thought I would take the same starting base: $15,000 contribution per year, from age 25 to 65, and see how well that would work back-testing it. For my gains, I will use the closing price on the first trading day of each year for the S&P 500 and the Sow Jones Industrial Averages to perform my calculations. It is assumed that the $15,000 is added as a lump sum at the closing price on the opening day each year.

Millions by Index

Year Started Dow Jones S&P 500
1950 $4,975,622.13 $4,789,419.06
1951 $4,435,851.85 $4,456,118.26
1952 $4,442,577.48 $4,300,670.84
1953 $4,627,110.41 $4,323,997.52
1954 $3,718,564.92 $3,453,646.95
1955 $4,774,308.55 $4,787,997.19
1956 $5,475,362.36 $6,100,519.91
1957 $5,750,605.25 $6,588,399.11
1958 $5,142,744.35 $6,378,305.16
1959 $4,595,544.60 $5,227,287.19
1960 $4,160,371.74 $4,443,817.83
1961 $3,454,648.16 $3,800,722.57
1962 $2,591,595.12 $2,992,674.31
1963 $2,870,847.63 $3,325,504.62
1964 $2,547,434.32 $3,265,594.37
1965 $2,644,768.63 $3,282,352.50
1966 $2,397,410.22 $2,987,189.25
1967 $2,447,994.42 $3,133,371.07

As we can see, even with the exact same investing method, the results vary widely depending upon what year you started and which index was chosen.

Now, while this is not quite as simple an example as the one that inspired this post, it is by no means a robust complex example. This one simply uses historic data for annual gains and ignored the effect that both dividends and taxes would have on the results.

Still, while these results are not quite as rosy as the ones offered up by Moolanomy, it still shows the same trend, summarized below.

Million Years

Million Moolanomy Dow Jones 1960-2000 Dow Jones 1951-1991 S&P 1960-2000 S&P 1951-1991
1 20 27 33 27 30
2 31 34 38 33 36
3 35 37 - - 37 - -
4 38 38 - - 38 - -
5 40 40 - - 39 - -

Once again, we can see how much of an impact that timing has on wealth. Just 9 years different in what year they started, and more than a two-fold increase in wealth after 40 years of investing. Still, even for the worst 40 years in our sample, regular investing over the long term results in a very sizeable nest egg. Hopefully, the future results continue to bear this out.

Let me know if you have an interest in seeing more details from the spreadsheet where I worked out these numbers.

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