• Nick Heil

Roth IRA Update # 3 - Steady Growth - January 2021

Hey everyone and welcome back to my blog. You might be wondering why I'm starting off this blog series with an "update #3" and also wondering where the first two updates are?


The first two updates were over on my YouTube channel.


Update #1 can be found here:


https://www.youtube.com/watch?v=tgY5OjC644Y


Update #2 can be found here:


https://www.youtube.com/watch?v=j2S6-euTtKM&t=213s


My goal with this series is not to get cute. I'm not going to provide long thought provoking blogs here. I'm simply trying to invest in my Roth IRA steadily over an extremely long period of time and report on it.


We all read the articles that suggest this is what we should do. However, the stories of people who actually follow this advice is few and far between.


That's a void I'm trying to fill here. I want to show people the good and the bad of what a real Roth IRA portfolio looks like over time.


No, my Roth IRA is not my entire investment portfolio and not even close, but I still feel it's important to document. In 30 years if this provides even an inkling of motivation to someone younger than I to take action and start investing for their future then it will be worth it.


I want to show the young 23 or 24 year old college grad that contributing to an IRA from the beginning of their career is worth. I want to show people what relatively small contributions out of every paycheck will turn into one day.


My last Roth IRA update that I posted on YouTube I was very happy to report that I had maxed out my IRA for the year by contributing the maximum annual contribution of $6,000.


My 2020 year end balance in my Roth IRA on 12/31/2020 was $8,088.00


I did this steadily over the year and invested a little money out of every paycheck to accomplish this. I have my Vanguard account set up to automatically deduct $230 from my bank account on the same day I get my paychecks deposited to my bank account.


I'm paid bi-weekly so that amounts to 26 paychecks in the year. $230 times 26 paychecks = $5,980. To get to the full $6,000 limit I just contribute a little extra once I get close to the end of the year to make sure I reach the full maximum.


2020 marked the first year in which I fully maxed out my Roth IRA. I only started contributing to my Roth IRA in late 2019. Fortunately, I have been investing longer than this; since the beginning of my career in 2014, in fact.


However, I was always reluctant to contribute to an IRA for some reason. I think subconsciously I didn't want to contribute to an IRA because I felt like I was completely locking my money up for an unimaginable amount of time. I think I also envisioned myself becoming much more wealthy than I currently am at this age.


Now that I'm older and wiser (although I'm still only 29) I realized those are foolish feelings to have. 30 years will go by in the blink of an eye and I would be foolish not to take advantage of these wonderful investment vehicles.


Don't get me wrong, I'm extremely proud of where I'm at and the net worth I've built at the young age of 29, especially considering the career choices I've made so far. But when you're 21 you tell yourself you're going to be a millionaire by time your 30 and the fact is for the vast majority of us that will not happen.


$1,000,000 by time you are 30 years old is truly an outrageous amount of money to earn in a small amount of time if you think about it. According to Education.org, only 63.8% of college students who enroll in bachelors programs at the age of 18 years or younger graduate within 5 years.


So let's be conservative here and say everyone graduates by the time they are 23 (they don't). That would only leave you 7 years to accumulate $1,000,000. On top of that the average starting salary once you graduate is only $51,347 according to an analysis by consulting firm Korn Kerry.


I don't know about you, but I actually started out quite a bit less than this when I started at Vanguard in 2014 with a finance degree. If I remember right I started somewhere around $44,000 per year, although the benefits were worth significantly more at Vanguard I've come to realize.


Even if you were able to somehow magically invest 100% of your $51,347 salary every year for seven years you would only have a total of $359,429 saved before investment gains. Additionally, in order to make it to $1,000,000 on that starting salary you would need to achieve 32% annual investment returns for seven straight years to strike the $1,000,000 mark.


So stop reading all the CNBC headlines about how "I became a millionaire by 25." They're either lying, aren't telling you the whole story, or were just unfathomably lucky.


$1,000,000 or even 2 or 3 million dollars is very achievable over a much longer time frame though and I believe it can be done inside an IRA; not to mention any other investments you will make over the course of your career.


Enough jibber jabber though.


In January of 2021 I stayed the course. I contributed a total of $460 to my Roth IRA and on January 31st, 2021 my Roth IRA balance finished at $8,648.46. This represented a 7% increase over my December 31 balance of $8,088.00.

If I were to retire on 9/30/2049 I would be a little over 58 years old and assuming an 8.5% annually compounded rate of return I'm estimating my Roth IRA will be worth somewhere around $831,837.12.


If I push retirement off until 9/30/2059 I will be a little over 68 years old and I estimate the value of my Roth IRA will be $1,557,835.76 using the same return assumption.


And finally, if I push off retirement until I'm almost dead at a little over 78 years old I estimate my Roth IRA will be worth $3,727,950.30.


(these numbers are the numbers I'm really excited to come back and look at one day to see how far off or how accurate I was in my estimates.)


I also continued to follow my current plan of accumulating more shares of the Vanguard Information Technology ETF (VGT). Additionally, the spare change I had left over after making that purchase I invested into the Vanguard Real Estate Index Fund (VGSLX).


As highlighted in my other updates, I'm working on accumulating a position in 3 to 5 core Vanguard funds. Once I achieve a little over $3,000 in each position then I will begin dollar cost averaging into all of them steadily with about 90% of my contributions and I'll use the remaining 10% to invest in whatever I want at the time.


With my most recent purchase I am now over $3,000 in both VGT and VGSLX, so I will begin building a position in the next fund, but I haven't quite decided which one yet.


Until next time, happy investing!


Make sure to check in frequently to keep up with my future updates. Also, be sure to connect with me on social media. Here is a list of all the sites I'm active on:


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