So idek how to word this really, but I have some concept in my mind I can't get out in text.
I know that even if the market were to take a massive downturn by retirement, that it shouldn't make a huge difference because of all that compound growth.
The way I'm currently thinking about it is only in reference to saving cash instead.
For example, let's say you have $0 to your name at age 30, but you get a job and are able to invest $300/month into the S&P 500 returning 10%/yr. From age 30 to age 65, you would've contributed $115,500 total of your actual cash. But the growth on that money would've been $928,576 — leaving you with $1,044,076. (Now the part that I feel like doesn't necessarily
follow) If that drops 25%, you'd have $783,057 — which is still 7x what you put in.
Now, am I right in thinking you wouldn't actually experience a drop quite that large — it would be less than that? Is there some formula to express this?
Like obviously as you buy the S&P 500 the value of that stock will increase overtime, and a 25% drop on a $100 stock is not the same as a 25% drop on a $1,000 stock, but your cost basis isn't going to be near the peak either. Let's say when you started investing the S&P 500 was $100, but at retirement it is $1,000. Your cost basis is going to be somewhere in the middle, so you'd be getting a 25% drop from that — not a 25% drop as if you invested everything at the peak — right?
Sorry if this is worded poorly, jus tryna figure it out!
Leave a Reply