How to turn $10,000 into $1,132,688.40 in 18 years

Saving as much as possible for your retirement can do a number amazing things for us. We can travel, visit and spend more time with family and friends, eat out at fancy restaurants, and the list goes on an on.

Two of the most powerful aspects are being able to:

• Retire early.

• Retire with endless possibilities.

Retire early

The more money we are able to save throughout our careers, the better chance that we’ll be able to retire early. ​​ Retiring early allows us to have more time to enjoy our retirement. ​​ Simple as that. ​​ We don’t want to be too old when we retire, otherwise we won’t be able to enjoy all that life has to offer (as easily). It also gives us more time to spend with our loved ones.

Retire with endless Possibility

What I mean by this is that if we have a sufficient amount of savings when we finally reach retirement, we don’t want a small budget getting in the way of awesome adventures. ​​ We want to be able to do anything we want, and have the money to do so for the remainder of our lives (which will be a long time if we get to that retirement early).

How?

The two biggest factors standing in our way are:

• The amount we commit to save each month

• The rate at which this saving grows (through our investing)

If your read the last post, then you know the power a good return can have on your portfolio. Saving as little as $500 a month can have a massive impact on your account over the span of many years.

But what if we can save more? (Trust me, you can).

Let’s look at how big of an impact saving $1,000 a month has on our investment account when your following the best passive investing Portfolio (AKA the Mohnish Pabrai’s ‘Free Lunch’ Portfolio).

Keep in mind, to save this amount each month, you just need to save $500 every two weeks (or every paycheck). ​​ The best way to do this is to have your employer automatically set aside this amount for you. ​​ At the end of each year you’ll have another $12,000 to add to your investments. ​​ And soon you’ll see just how big of an impact this will make.

Your potential returns

Over the last 17+ years, Mohnish pabrai looked at how well his portfolio performed, he then compared this to the return of the S&P 500 (the most popular passive investing vehicle) over the same period. ​​ Let’s look at how investing in the S&P would have worked out vs investing in Pabrai’s ‘Free Lunch’ portfolio would have impacted your account, and the amazing potential going forward.

Saving $1,000 a month and Investing in the S&P (2000-2017)

We’ll look at the 17 year period and a 22 year period to match what we looked at with a $6,000 saving from my last post. ​​ Note, the S&P increased by an average of 5.4% over the 17 year period. ​​ (After year 17 I increase that to 9.8% for years 2018-2022)

Not to bad right? At year 17, your money would have grown to $321,125. And you would be earning $17,340 a year. ​​ If we look ahead to year 22, we see your account would have grown to a descent $564,924, and you would now be earning $55,362 a year on that money. ​​ You can see the potential that increasing your investment savings gives you, right?! Now let’s see what a much better return can do for those savings of yours…

Saving $1,000 a Month and investing in Pabrai’s ‘Free Lunch’ Portfolio (2000-2017)

This is the fun part. We’ll look at the 17 year period and a 22 year period to match what we looked at with a $6,000 saving from my last post. ​​ Note, the ‘Free Lunch’ Portfolio managed to increase by an average of 17.1% per year, over the 17 year period. ​​ I use that same percentage from year 17-22.

Wow, impressive. ​​ If you had invested in Pabrai’s Free Lunch’ Portfolio back in 2000, you would now have $957,018! ​​ But here’s where the real power is… With that kind of growth rate, look how much you would have earned in year 17 alone: $163,650. ​​ What this means is, if the portfolio continued to grow at it’s historic rate of 17.1% per year, you’d be able to live off the $163,000 and not touch principal at all.

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Conclusion

You can begin to see the power investing properly can have on our future potential. ​​ The better the sustained increase in our investment we can achieve over our lifetime, the much better our savings and retirement will be. ​​ Once we figure out how to achieve an excellent sustained return, all we have to do is feed the machine by saving as much as possible and following the rules, year after glorious year.

Disclaimer: This is for entertainment and educational purposes only. This is not to be taken as investment advice. I am not an investment advisor, nor have I considered your personal situation as your fiduciary. In other words, any investment you make ​​ (or don't make) is completely your responsibility.