6% per year for 35 years

In a post about twins and investing, if annual interest rate of a hypothetical investment is about 6%, then someone who starts contribution early with a lower total contribution can tie at retirement age with another who starts contribution later with a much higher total contribution. The time span of this investing career is 35 years. Does such an investment exists?

From 1970 to 2021, S&P 500 has a mean annual growth rate (CAGR) of 11.07% ¹ over those 52 years. This is far higher than 6%. The mean is over 52 years which is quite a long time. We know the stock market can be volatile. What if we look at CAGR in 35-year rolling windows? From 1970 to 2005 is one window, from 1971 to 2006 is another and so forth.

The chart ¹ shows the CAGR of 35-year rolling windows of S&P 500, as well as for inflation. We can see fluctuations in S&P CAGR, but they are all well above 6%. Back to the twins and investing post, this means that at any year that you started the 35-year investing career, you will beat your twin. In addition, because S&P 500 CAGR is higher than the break-even number, “compounding return” is on your side. You can contribute less or start later and still tie with your twin.

Does a S&P 500 investment exists? Answer: yes