Portfolio math

Investing €500 a month: what it becomes in 20 years

€500 a month for 20 years compounds to about €260,500 at an assumed 7% a year. Of that, €120,000 is your own deposits and €140,500 is growth. The arithmetic is correct. The 7% is an assumption, and the way the number is usually presented leaves things out.

This article walks through that headline number. It covers where the curve is flat and where it is steep, which inputs change the result most, what fees and inflation subtract, and why the outcome depends more on your bank transfers than on your stock picks.

All figures below use the same assumptions, monthly contributions and monthly compounding, and are rounded to the nearest €100, so you can check them against any calculator.

What the 7% assumption means

That 7% is a long-run average for global equities, before your own behaviour is subtracted. It arrives as years of +23% and years of −18% in unpredictable order. The smooth curve in every calculator, ours included, is the average of many jagged paths. It is useful for planning and misleading as an expectation.

The order matters less than people fear during the accumulation phase. When you buy monthly, a crash early in the plan lowers the prices you pay.

The scenario that hurts is a crash at the end, when the balance is largest and the remaining years are fewest. What anyone does about that is a portfolio decision, and this article does not make it.

The milestones, year by year

Here is the same €500-a-month plan at 7%, cut into five-year slices, because the shape of the curve matters more than its endpoint.

Read that with an eye on the growth rather than the totals. The first five years produce under €6,000 of investment gains. The final five years produce about €72,000, so more than half of the roughly €140,500 of total growth arrives in the last quarter of the timeline.

Nothing changed about the plan or the return. That is what compounding on an ever-larger base looks like, and it is why the chart in every calculator is nearly flat at the start and nearly vertical at the end.

The inputs that change the result

Play with any compound calculator and the ranking is clear.

Time has the largest effect. Starting five years earlier beats almost any return improvement you can realistically achieve.

Contribution is the input you control. Raising the contribution from €500 to €700 a month adds roughly €100,000 to the 20-year outcome at 7%.

Return is the input people focus on most and control least. It is also the input the research has the least good news about. Morningstar's yearly Mind the Gap studies keep finding that investors earn 1% to 1.5% a year less than the funds they hold, purely through timing.

Fees compound too, in reverse. A 1.5% annual fee on the same plan removes about €42,000 from the end result.

Time, in numbers

Stretch the same €500-a-month plan to 25 years instead of 20, which is the equivalent of starting five years earlier. The outcome grows from about €260,500 to about €405,000, roughly €145,000 more, for €30,000 of extra deposits.

Now try to buy the same improvement with performance. Raise the return from 7% to 8%, a full percentage point of outperformance sustained for twenty years, which is more than most professional fund managers deliver after costs. The 20-year outcome improves by about €34,000.

Five extra years of being invested beat a percentage point of outperformance over two decades by a factor of four. In this plan the calendar does most of the work.

Fees, in numbers

A 1.5% annual cost, an ordinary figure for actively managed funds or advisory accounts, turns the 7% gross return into 5.5% net. Run the plan at 5.5% and twenty years of €500 a month ends near €217,800 instead of €260,500. The gap is about €42,650.

The fee never showed up as a loss, a bad year, or a red number anywhere. Every statement looked fine. The money is absent at the end, which is what makes percentage fees hard to see. Run the same plan at an annual cost of 0.2% instead of 1.5% and most of that €42,650 stays in the account.

The fee percentage is a number you can read before you buy. The shortfall it causes only shows up at the end.

Inflation, the other subtraction

The €260,500 arrives in the euros of twenty years from now, which buy less than today's. If inflation runs at 2% a year, your purchasing-power return is roughly 5% rather than 7%, and the plan's end value in today's money comes to about €205,500.

That is still a large sum for €500 a month, but a different one, and the gap widens with every year of the plan.

This cuts the other way too. A €500 monthly deposit left unchanged for two decades buys less every year once inflation is included. Whether the amount moves with your income is a decision the arithmetic does not make for you.

The early years

The milestone list has a psychological reading too. In year one you deposit €6,000 and the market's contribution is somewhere around €196. Years two to five are not much livelier.

This is the stretch in which monthly investing feels slow and the temptation arrives to chase something faster, to pause until things look better, or to conclude that the math is broken.

The math is back-loaded. The flat early years precede the steep late ones at every return, and the curve does not have one without the other.

Whether you captured the market's return along the way is a checkable fact rather than a feeling. That is the premise of asking whether you are beating the S&P 500, and measuring a portfolio that is fed monthly has some subtleties covered in time-weighted vs money-weighted return.

What a tracker shows about the plan

A projection is a shape. A tracker that shows your cumulative deposits next to your portfolio value, and next to what an index would have done with the same deposits on the same dates, shows whether the plan was followed and what the market did with it. BullBenchmark draws all three lines from your broker history.

The deposits line answers the question the early years can meaningfully ask. In year three, the portfolio value mostly tells you what markets did, which you do not control. Whether €500 was transferred every month is the part that was in your hands, and it is the input on which the twenty-year projection rests.

In short

BullBenchmark reads the transaction export from your broker and shows your return next to the S&P 500 and the Nasdaq 100, fed with the same deposits on the same dates, in your own currency. The first two weeks are free and no card is needed.

Related: Why investors underperform