Another Newbie Thread: Is this possible?

I was talking to someone who told me that if you open up a standard mutual fund and deposit 2,000 for the first 5 years you can make over a million in twenty years without depositing past that 5th year. Possible? How do I start doing this? I am young and lkooking for investments that will benefit me in the future, any advice?

[ChromePony]

I'm pretty new to investment stuff myself, but from a pure math viewpoint that sounded a little ambitious to me so I thought Id do some research.

If you google investment calculators you can find some tools to help approximate return. According to the one I used an initial investment of 10,000 paying 12% over 20 years would would leave you with $100,000, 15% about $160,000 and on top of a generous yearly rate this is a touch high since assumes that you have all 10k up front (couldnt figure out how to add for 5 years and then stop for the next 15). Nothing to scoff at, but a 100x return from a basic mutual fund in 20 years isnt all that realistic.

[StickyWicket]

The first thing you should remember is that "past performance is no guarantee of future results."

Secondly, the annualized rate of return for the stock market has historically been estimated between 8-9% per annum. Therefore, you're looking at about $46k over 20 years with a $10k initial investment.

The best advice I can give is to start maxing-out your retirement savings ASAP in both an IRA and your employer's 401k (if available). Anyone telling you that a cool million is possible with $2k x 5 years is, IMHO, selling you a bill of goods.

Sticky [img]/images/graemlins/heart.gif[/img]

PS: for basic, REALISTIC, investing education, go to:

www.morningstar.com
www.fool.com

Both are excellent sites for the beginning investor, and Morningstar also has an online "classroom" where you can do modules and learn about a HUGE array of investing basics (AND not-so-basics).

[Sniper]

[ QUOTE ]
I was talking to someone who told me that if you open up a standard mutual fund and deposit 2,000 for the first 5 years you can make over a million in twenty years without depositing past that 5th year. Possible? How do I start doing this? I am young and lkooking for investments that will benefit me in the future, any advice?

[/ QUOTE ]

These numbers are inflated [img]/images/graemlins/wink.gif[/img]

Here's the real deal, 3 examples that demonstrate the power of compounding and why the earlier you start the better...

All 3 examples assume 10% annual returns and 3K/yr invested in the years where new $$ are added...

Example 1 - Billy invests 3K/yr for 5 yrs when he is 15-19...
Total investment = 15K, Total Port at 65 = 1.6 Million

Example 2 - Susan invests 3K/yr for 8 yrs when she is 19-26...
Total investment = 24K, Total Port at 65 = 1.55 Million

Example 3 - Kim invests 3K/yr for 39 yrs starting at age 27...
Total investment = 117K, Total Port at 65 = 1.3 Million

[Examples taken from The Automatic Millionaire by David Bach]