Is investing $25,000 today enough to grow your portfolio to over $1 million in retirement?

Did you know that for your investment to reach 10 times its value over a 20-year period, you would need an average annual return of 12.2%? But if your investment grows at a rate of 8%, it will take 30 years to reach that level. A difference of a few percentage points may mean waiting longer to achieve the desired level of growth.

This is why it can be difficult to predict how much your investment will grow over a long period of time, because ultimately a lot will depend on this long-term average growth rate. Below I will look at different growth scenarios for a $25,000 investment to determine if investing that much in the S&P500 today can be enough to eventually grow your portfolio to $1 million by the time you retire.

The market could underperform in the future

Given the stock market’s performance over the past decade, investors may want to prepare for lower returns in the years to come. Goldman Sachs warns investors that over the next decade, the S&P 500 could average an annualized return of well below 3%. Although its long-term historical average is 10%, it has achieved much higher returns in recent years.

^SPX data by YCharts

The S&P 500’s total returns (which include dividends) of 250% over the past decade translate on average to a compound annual growth rate of 13.4%. This may not seem like a big difference, but over a long period of time it adds up and can lead to significantly inflated valuations. These elements are evident in the market today for many growth stocks, hence the need to prepare for potentially lower returns ahead.

How much could a $25,000 investment today grow in the long term?

If you invest $25,000 in the S&P 500 today and hold that investment for 30 or 35 years, you could expect it to eventually grow to $1 million. But how likely is this scenario? The table below projects what the balance could be based on different growth rates.

Calculations by author.

While it’s possible for a $25,000 investment to grow to $1 million, you’ll either need a very high annual return of at least around 13% or be willing to wait 35 years (or more) if your return ends up being less than that. The chart helps illustrate how differently a $25,000 investment can grow depending on the number of years you plan to stay invested and based on different rates of return.

Low expectations can save you from future disappointments

Warren Buffett’s right-hand man, the late Charlie Munger, once said that “the secret to happiness is to lower your expectations.” And this is especially true in the world of investing, where investors may be tempted to buy risky stocks hoping they will generate 10- or 20-fold returns over a short period of time. These are unlikely scenarios that can frustrate investors.

Instead, by setting your expectations low, you can avoid this situation and you might even end up with a pleasant surprise if your returns are higher than you estimate. While investing can seem disappointing if you’re only expecting modest returns, a more level-headed approach can lead to less frustration and stress down the road.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds positions with and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.