2018: What If You Invested $1,000 Per Month For The Last 10 Years

It’s been 1 year since I made the post where I looked at how you would’ve done if you would’ve invested $1,000 every month in a simple portfolio for the last 10 years.  There were a few points I wanted to make;

  • Too often investors look to one specific point in time. “How would I have done if I invested then”.  Or “I should’ve invested at that point”.  That’s a horrible way of looking at things in my opinion.
  • Practically speaking if you’re regularly & consistently investing, it doesn’t really matter when you invest. Dollar cost averaging for the win.
  • You should be investing consistently. $10/month, or $1,000/month, or $10,000/month, or more. Stop putting it off.  That’s what I tell my friends.

And holy shit it has been a fast year.  So let’s see how you would’ve done for these last 10 years.

Now last year, I looked at 3 funds.

  1. S & P 500 (using Vanguard’s index fund)
  2. Vanguards Life Strategy Aggressive 80/20 (stocks / bonds) fund
  3. First Eagle Global (A go anywhere quality / value mutual fund that I like with manager investment > $1,000,000)

While while anyone of those would be a perfectly decent investment, for the sake of comparison, and to show make an important distinction between the risk/return of stock/bonds I’m going to use 2 new funds.  This year will be all Vanguard Lifestrategy Funds.

  • Vanguard Life Strategy Conservative Growth (40% Stocks, 60% Bonds)
  • Vanguard Life Strategy Moderate Growth (60/40)
  • Vanguard Life Strategy Aggressive Growth (80/20

Now Before we look at a month investment, I want to note, how each would’ve performed if you just looked at the 10 year total cumulative return of a lump sum $10,000 investment, as many investors do… because that’s what the financial advertisements tout.

You’ll notice during the bubble / crash, the peak of which has now rolled off 10 year chart, the conservative portfolio declined 27%, relative to the aggressive portfolio drawing down over 45%.  Many would look at this and say “it’s not worth allocating so much to stocks with that draw down — I’d just rather go conservative”.  Fair point.  But how would the perspective change if you didn’t invest all your money in one lump sum?  What if you contributed bit by bit but over time?  What if you never had the anchoring effect of your initial $10,000 and totally lost track of investment contributions altogether.  That’s the power of dollar cost averaging!

Anyways this post isn’t about dollar cost averaging.

Here’s the chart of how $1,000 invested each month into these 3 asset allocations would’ve done!

It reveal many interesting things.

For one, the ending final balance is wider, to the point of making a material difference.

The Internal Rate of Return, is measured and shows a much more accurate metric of investment return comparison through the life of an investor that is regularly contributing to a portfolio.  This accounts for the times you buy when the market is super high, and also when it is super low.

On a chart, the draw down isn’t so pronounced.  Now yes there is a draw down of your initial dollar deposits, but the psychological effect is much less profound when you’re constantly adding new funds to the portfolio.  And by adding funds at this time, you’re buying when things are low cost, and those are the dollars you’ll get a higher return on which pull ups your IRR.

The chart does nicely show the volatility during the 2015 – 2016 of a portfolio based stock / bond allocation.  It’s not hugely important, and the similar would be visible for the 09 period with a log scale.

So even with a great recession still in the rearview mirror it wouldn’t have been a bad time to be an investor.  Next year, the worst drawdowns of the recession will be out of the picture, and also out of the 10 yr return charts that are commonly shown in investment product marketing material.

If you’re next question are how do I start investing?  How do I get the returns in the graphs?  Simple, you can open an account with vanguard and invest in one of the mutual fund I mentioned.  I believe the minimum is $3,000 or so.  You’re not going to get much guidance there however.

There’s also betterment, which will hold your hand a bit more and give you a simple diversified portfolio based on your risk tolerance — with no minimum.  Totally worth the low fees they charge.

Founder of a home service / specialty trade contracting company (think patio’s and deck) with a focus on customer experience. Quantitative investor. Data driven marketer. Runner.

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