In yesterdays article “Make your kid a millionaire“, I mentioned my thoughts on using an average annual return of 8% for projecting future returns.

As a follow-up, here is an infographic from the NY Times, entitled “In Investing, It is When You Start and When You Finish”.

To summarize, Crestmont research created a matrix of the returns for the S&P500 since 1920.  Based on the year you first started investing, you can see the yearly returns.

After accounting for dividends, inflation, taxes and fees, $10,000 invested at the end of 1961 would have shrunk to $6,600 by 1981. From the end of 1979 to 1999, $10,000 would have grown to $48,000.

“Market returns are more volatile than most people realize,” Mr. Easterling said, “even over periods as long as 20 years.”

The graph highlights the 20 year timeframe as a realistic start date for making withdrawals from a retirement account (i.e. the day that you need to have that million dollar account).

The absolute BEST 20 year span averaged 8.4% annual return.  If you take the median of the “average annual return” for each 20 year span from 1920 until 1990, you get 4.1%.

This is one reason everyone (kids and parents alike) needs to be financially literate and take responsibility for their financial future.