Updated: Jul 7, 2021
Investors have seen some major swings in their account balances over the course of 2020. Now that the year is coming to an end, let's see how well an account invested at the beginning of January 2020 could have done.
Ugly 2020, but the stock market grew anyways
For the sake of simplicity, let's use an account invested solely in the S&P 500. That is a good benchmark for those looking for growth in an account. That said, it's not always a guaranteed return; some years the market goes down, but about two-thirds of the time it goes up.
The S&P 500 started the year off hovering just over 3200. As of this writing on November 18th, 2020 it is just over 3600. According to a Yahoo Finance chart that's just over an 11% increase, excluding dividend payments. That's impressive given how bad things got back in March when the lockdown started.
About that investment. If an investor made a max contribution of $6,000 to a Traditional IRA at the beginning of the year and invested in an S&P 500 index fund, the account would have made roughly about $666, and currently be worth $6,666. Not a bad return considering the COVID-19 pandemic. Of course, one would have had to stomach the huge crash and ride it out to still have achieved this gain.
But let's say, just for fun, an individual was doing their taxes in March and decided to make an IRA contribution for 2019 before the April deadline. They put in the same $6,000 max Traditional IRA contribution and invested it on March 20th. What kind of return could they have received?
Again, even if they would have just indexed their account to the S&P 500 they would up by 50%, putting the account at about $9,000. A pretty remarkable return to say the least! Now obviously this is not a normal return, and should definitely not be expected every year! However, this proves the point of the old investment saying, "Buy when there's blood in the streets."
Lets just say, though, an individual invested later in the year, maybe in the middle end of July. They would still have around a 10% increase. A much more realistic long-term return, but nonetheless a more than respectable investment decision. At $ 6,000 that would be a $600 gain.
Keep investing for your future self
There are two main benefits to investing in the stock market through a Traditional IRA account: The money is growing tax deferred, and the growth has been proven throughout history to be the best return on an individual's money, with no work involved on their part.
Again, depending on someone's situation and financial goals, this is subject to change. But the idea here is to demonstrate that investing is long term. So when is the best time to invest? Today. The short-term gains or losses are variable, but variability decreases over the long-term and on average will rise in value. The twists and turns can cause some worry and negative emotions. But stay the course, don't panic sell and lock in losses. Think long term and continue to contribute to your future self.
If you would like a second look at how your accounts are invested, feel free to get in touch with us. We would be happy to assist you on your investing journey.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.