What kind of return can you expect from an index fund, then? Well, it all depends on the index it’s tracking. If it tracks a bond index, for example, you’ll get roughly the same return as that index (less fees).
It’s hard to beat the stock market, though, for your long-term dollars — those you won’t need for at least five years, if not 10. Over many decades, the overall stock market has averaged annual returns of roughly 10%. You can’t expect that in your investing time frame, though — you’ll likely average more or less.
It’s all math
With that long-term average annual return for the stock market of roughly 10% in your head now, we can look at how it can turn $10,000 into $1,223,459. It’s all just math.
Imagine that you took $10,000 and invested it in the stock market and earned an average annual return of 8%. You would end up with around $1.2 million — eventually. But here’s some bad news: It would take around 63 years! What if the market averaged 10% annually? Well, then, it would only take a bit more than 50 years. Hmm.