I don't quite understand how investing into index funds works, or how to interpret the average historical returns.

Let's say that, 10 years ago, I decided to invest $30,000 dollars at the end of each year into VTSAX. According to Yahoo finance,

enter image description here

the 10-year trailing returns were 13.42%. Does that mean that, after 10 years, those 10 deposits of $30,000 would have become:

30,000*((1+0.1342)^10-1)/0.1342 = $563,979.54

??? (This is the formula for actuarial future value, S 10|0.1342)

If not, what is the correct future value calculation?

  • You don't have enough information to calculate an exact value. You'd need the annual returns for each of the last 10 years individually. – glibdud Dec 18 '19 at 1:07

The final value would be $629,811.05. Try using this calculator: https://dqydj.com/etf-return-calculator/.

The problem with your calculation is (1) it won't include dividends, and (2) The initial $30,000 will have earned 13.42% interest annually, the final 30K would have earned 15.34% annually (according to your chart). i.e. the growth rate is not consistent across time, so your periodic investments won't have the same 10 year growth rate.

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