Is Investing $25,000 Today Enough to Grow Your Portfolio to More Than $1 Million by Retirement?

Did you know for your investment to grow to 10 times its value over a 20-year period, you would need to average an annual return of 12.2%? But if your investment grows at a rate of 8% then it would take 30 years for it to reach that level. Just a difference of a few percentage points can mean waiting longer to achieve the level of growth you wanted.

This is why it can be difficult to project just how much your investment may grow to over a long period as a lot will ultimately depend on that long-run average growth rate. Below, I'll look at different growth scenarios for a $25,000 investment to determine if investing that much into the S&P 500 today can be sufficient to eventually increase your portfolio to $1 million by the time you retire.

The market could underperform in the future

Given how well the stock market has performed during the past decade, investors may want to brace for lower returns in the years ahead. Goldman Sachs is warning investors that during the next decade, the S&P 500 could average a much lower annualized return of 3%. While its historical long-run average is 10%, it has been achieving much higher returns in recent years.

^SPX data by YCharts

The S&P 500's total returns (which include dividends) of 250% during the past decade average out to a compound annual growth rate of 13.4%. It might not seem like a big difference, but during a long period, that accumulates and can result in significantly inflated valuations. Those are evident in the market today for many growth stocks, hence the need to brace for potentially lower returns ahead.

How much could a $25,000 investment today grow over the long haul?

If you invest $25,000 in the S&P 500 today and hold that investment for 30 or 35 years, you might expect that it could eventually grow to $1 million. But just how probable is that scenario? The table below projects what the balance might be based on different growth rates.

Calculations by author.

While it's possible for a $25,000 investment to grow to $1 million, you'll either need a very high annual return of at least about 13%, or be willing to wait 35 years (or longer) if your return ends up coming in lower than that. The table helps to illustrate just how differently a $25,000 investment can grow when adjusting for the number of years you plan to stay invested and based on different rates of return.

Low expectations can save you from future disappointment

Warren Buffett's right-hand man, the late Charlie Munger, once said that "the secret to happiness is to lower your expectations." And that's especially true in the investing world, where investors can get tempted into buying risky stocks with the expectation that they will deliver 10-fold or 20-fold returns in a short period. Those are unlikely scenarios that can leave investors frustrated.

Instead, by setting your expectations low, you can avoid that situation and you might even end up with a pleasant surprise if your returns come in higher than what you estimate. Although investing may seem underwhelming if you're only expecting modest returns, a more level-headed approach can result in less frustration and stress later on.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.