If you have a $100,000 to invest in the stock market, what amount can you expect to have in 10 years?

## Average Growth

One way to proceed is to assume you will earn its average historical performance every year. That is a bit shy of 10% growth per year the S&P 500 experienced from 1926 to 2010. Let’s round it to 10%. You can expect to have $259,374 at the end of ten years.

This is a pleasant chart to contemplate, but we know the stock market can down for entire years. The above chart removes that reality from your consideration.

## Monte Carlo Simulation

Another method to look at the future value of a $100,000 portfolio is called Monte Carlo simulation. With it, the chaotic nature of growth and drop the market experiences over the years is brought into play. I segmented the 85 years of market performance (as reflected in the S&P 500) into 9 ranges. There are some years with very bad losses. As the chart shows, in three of those 85 years, the stock market fell between 30% and 50%

Among these nine intervals, I randomly select a return for the first year, then the second year, and so on until the ten years are done. That is simulation one. I do the same procedure, of course starting with the same $100,000 portfolio for simulation 2 through simulation five.

In the chart below, you can see the variability that your $100,000 goes through in five different scenarios. Poor returns in the early years results in Sim5 only having $51,000 after ten years, while Sim 2 has over $500,000.

The simulation doesn’t have a specified starting year. Any year will do.

The way it works is that the $100,000 ‘pot’ is the starting condition. Then random annual returns are applied year after year.

Do you have the starting years for the 5 simulations?