This post will provide some suggested net worth growth target rates by age. It's good to have net worth growth targets to help ensure you will retire comfortably. After all, everything is relative in finance. If you've got a net worth target of $1 million at age 30, but most people at age 30 have a net worth of $2 million, you're actually behind!
At the minimum, your net worth should grow at the rate of inflation each year. If it doesn't, you're getting poorer in real terms. But ideally, your net worth should grow by at least the risk-free rate of return each year, which is the 10-year government bond yield. Treasury bonds along with cash are the least risky ways to invest.
In your younger years, your net worth growth will be faster because you are poorer. As you get wealthier, your net worth growth will likely slow down given a large base. As you get wealthier, you also don't want to take as much investment risk out of fear of going in reverse.
Methodically growing your overall net worth is what wealth creation is all about. Your net worth is the culmination of savings, investing, real assets, and liabilities.
I'm much more concerned about growing my net worth than only growing my stock portfolio because my stock portfolio is just a portion of my net worth. Over time, your net worth composition may consist of real estate, private equity, your own business equity, bonds, collectibles like rare books, and more!
Grow Your Net Worth Appropriately
Think of your net worth like a battleship during a time of war. As the intrepid captain, you are navigating your net worth to glory through sea mines of temptation and unknown icebergs of economic downturns. The greater you build your net worth, the more careful you steer.
It's always important to think about your net worth in a risk adjusted manner. Putting 100% of your net worth into the stock market isn't so bad when you're a single 28 years old with $150,000 to your name.
But if you're 50 years old with a couple kids entering college, you're likely not allocating your entire $1 million in assets into the stock market. The faster your net worth CAGR the sooner you will get to your net worth target.
My Net Worth Growth Goals
When I was in my 20s, I didn't really track my net worth because I didn't know better. I was focused on my career and saving as much as possible.
My idea of net worth diversification was investing as much as I could away from the stock market given my pay and career were already dependent on the stock market. Every year 20%-30% of my compensation was paid in the form of company stock so there was no escape.
For 10 years this strategy worked pretty well because the stock market really didn't go anywhere from 2000 – 2010 and real estate caught fire until 2007.
I've been much more surgical in managing my net worth in my 30s given it has grown to a point where it throws off an important passive income stream. Not having a day job anymore makes it that much more important to protect my financial nut.
If I can grow my net worth by 10% per annum, I'm usually satisfied. To put 10% in context, Bernie Madoff was able to amass $50 billion dollars under management because he delivered fake 10% annual returns!
In this article I'd like to provide several net worth growth targets to consider as well as a net worth growth framework by age.
I think if I was able to read this article in my 20s and early 30s, I would have allocated more of my net worth into equities and would have a 10% higher net worth as a result. Hopefully this framework will help many of you build wealth.
Net Worth Growth Benchmarks To Consider
Since everything is relative in finance, to grow your net worth, it's helpful to have benchmarks. Here are the most common net worth growth benchmarks to consider. The stronger your net worth compound annual growth rate, the richer you'll end up.
1) S&P 500 Index Performance.
The index of 500 large cap weighted stocks was introduced in 1957 and makes up 75% of the total US market capitalization of stocks. In other words, the S&P 500 index is the best reflection of the US economy. Returns have been anywhere from -43% in 1931 to +52% in 1954 to +30% in 2013. The average hovers around 8%.
The only way to get ahead if you are behind the average net worth for the above average personis to grow your net worth faster than the S&P 500 index. Targeting the S&P 500 index as a net worth growth benchmark is generally for middle aged individuals.
Just one thing to note. After a massive bull market since 2009, return forecasts over the next 10 years is way down. Therefore, you ironically will have a lower net worth growth target to shoot for.
Below is Vanguard's estimates of returns for U.S. stocks, U.S. bonds, and inflation over the next 10 years. Their forecast came out in August 2021. So far, Vanguard's inflation estimates have been wrong. However, the lower expected returns have been right because stocks and bonds went into a bear market in 2022.
2) Risk Free Rate.
The risk free rate is the 10-year government bond yield. It is risk free because the US government is the most sovereign nation and will pay you back unless we get attacked by aliens. The risk-free rate of return should be higher than the inflation rate to provide a real return. As I said in the beginning, your net worth needs to be growing at at least the inflation rate to maintain your buying power.
The current risk free rate is roughly 4.5% from a low of 0.51% in 2020. Meanwhile, inflation is back below 3.5%. Hence, your net worth should grow by at least 3.5% a year, if not 4.5% a year.
The risk free rate has been coming down for over 30 years as we've managed to contain inflation in the US and enact more effective economic policy. However, it spiked higher after the Fed raised its Fed Funds rate 11 times since 2022 to combat inflation.
Given I believe the ideal withdrawal rate during retirement touches no principal, growing your net worth by at least the risk free rate should be the base case goal for all individuals, especially traditional retirees over 65 who no longer have strong earnings power.
Using the 10-year bond yield as a net worth growth target makes sense for conservative investors and wealth accumulators. Everybody should target to growth net worth by at least the risk-free rate of return because it is guaranteed. However, not everybody does because not everybody has 100% of their net worth in Treasury bonds. In addition, people spend money differently and have different sources of income.
3) Industry Specific Indices.
You can benchmark your net worth growth to the industry you work in. For example, if you work in the tech industry, you can benchmark your net worth growth to the performance of the NASDAQ index. You can also narrow down your net worth benchmark to the semiconductor industry if you work at a semiconductor company.
Every industry has differing rates of growth. It would be unfair to compare the growth rates of the stable telecom industry with the growth rate of the internet industry.
You can track your industry's annual growth rate through the performance of industry ETFs such as: HDG (hedge fund), XLP (consumer staples), XLE (energy), XLF (financial services), XLV (healthcare), XLI (industrials), IYR (real estate), GDX (materials), IYZ (telecom), XLK (tech), and XLU (utilities). You can be even more specific by tracking your own company's stock price performance if it is publicly traded.
If you want to expedite your wealth, then a large part of it has to do with choosing the right job in the right industry. This is why it's important to do well in school so you have the options to choose your destiny. The top industries for MBAs are now tech and internet, as opposed to banking and management consulting in the late 90's.
The Ideal Net Worth Growth Rate Scenario
A great goalis to make money in good times and bad times. This is the first rule of financial independence: to never lose money overall! You can lose money in your stock portfolio or real estate portfolio in any given year. But your goal is to always grow your overall net worth each year, no matter what.
Hence, if your stock portfolio is tanking one year, then you may want to work harder at your day job to gain a promotion or take on a consulting job to supplement your income. It's obviously hard to show a net worth increase during a bear market. But you should try.
Based on my net worth growth rate benchmarks, an optimal scenario is toearn the risk free rate of return during down markets and match the S&P 500 growth rate during up markets.
In order to do this, you've got to break down your net worth and make assumptions across each asset class. You've got to hedge out risk. No easy task, hence the ideal scenario.
Assumptions For A Net Worth Growth Target Framework
- Risk tolerance: Risk tolerance decreases the older you get due to added responsibilities, a larger net worth in need of protecting, and less time to make up for investment losses.
- Earnings power: Earnings power increases steadily up until about 50 and begins to decline due to age discrimination, risk of termination, less energy, and the risk of not finding work again if terminated.
- Economic variables: Average historical variables of GDP growth 3%, inflation 2.5%, risk free rate 0.5% higher than inflation.
- Education:Graduated from college or attended a trade/vocational school. Or you're at least subscribe to the Financial Samurai newsletter and read bestselling personal finance books like Buy This Not That.
- Employment: Continuous employment or livable income since graduation.
- Savings rate: At least a 20% average after taxes over your entire career.
- Net worth upon entering the work force: $0. I realize many students nowadays graduate with debt, but for simplicities sake we start with a $0 net worth. If you have student loans, then think of the educational capital you have to bring your net worth back to zero.
Net Worth Growth Target Rates By Age Chart
Below is my net worth growth target rates by age chart. You can use it as a guide for your target net worth CAGR (compound annual growth rate). Your net worth CAGR is faster when you are younger, have less money, and have a higher risk tolerance. As you grow older, your net worth CAGR slows.
18-30 YEARS OLD: EXTREME NET WORTH GROWTH PHASE
Between the ages of 18-30 you should be in the extreme net worth growth phase. If your net worth is $10,000 at the age of 23 one year out of college, it should be fairly easy to double your net worth to $20,000 if you make $40,000 a year and live rent free in your mom's basem*nt.
You've literally got nothing to lose when you're young. It's important to take calculated risks in your career and in various investments. You've got plenty of time to learn from your mistakes. You're also able to have a redo by going to graduate school.
Net worth growth rate target per annum: 50%-100%+
31-35 YEARS OLD: RAPID NET WORTH GROWTH PHASE
Age 30 is a big milestone for both men and women. Speaking from a man's point of view, we either will have “made it” or know we are on the right path to making it at age 30. Income should be much greater than income in your 20s, which should help accelerate savings and investing. 31-35 is the median age where most Americans buy a home.
After 8 to 13 years of contributing to your 401(k), you should have roughly $130,000 – $330,000 if you follow my 401(k) by age chart. You begin to see the growth of your assets make a difference to your overall net worth.
No longer is it just about making more money by going to work. It's about making your money work for you. As a result, you need to focus on getting your saving rate above 20% so you can boost your taxable portfolio.
Given you can't withdraw from your 401(k) penalty-free before age 59.5, it is your taxable portfolio that's going to fund your lifestyle if you plan to take things down or retire before age 5.95.
Net worth growth rate target per annum: 25%-50%
36-40 YEARS OLD: HIGH NET WORTH GROWTH PHASE
You begin to take risk off the table because you might have dependents. No longer are you going to have a majority of your net worth in stocks when you've got a spouse and a little one to put through school. Your parents are likely in their 60's to 70's if they are still around. You'd like to set aside some time and money to care for them if needed.
36-40 years old is a great time for income growth as you've now got 10-18 years worth of experience. You're old enough to get real respect from your employees, clients, and managers.
In terms of love life, 35 years old is also the golden cross of love for men. Your net worth is much more diversified now with real estate, stocks, bonds, and risk free assets. If you don't have any dependents, you can afford to take more risk.
The combination of earning a higher income, having a larger net worth, and having more responsibilities is tricky. By this time, you should be focused on building passive investment income to help you pay for your day-to-day living expenses.
Think about your passive income streams as mini engines to help you fly farther and faster. They are also there to help keep you from crashing in case your main income engine goes out.
Personally, at this age I'm diversifying my investments into private real estate investments and venture capital given private growth companies are staying private for longer.
I've invested $954,000 since 2016 in private real estate funds like Fundrise. With so much expensive San Francisco real estate, I wanted to diversify to the heartland. I don't want to manage more physical rental properties with two young kids.
Net worth growth rate target per annum: 10%-25%
41-55 YEARS OLD: NORMALIZED NET WORTH GROWTH PHASE
After 20 years of saving and investing you've grown a respectable sized nest egg which you'd like to protect. You begin to tire working for the man so the thought of your retirement nest egg losing any value petrifies you to be more conservative with your investments. You've got a propensity to hoard cash like the rich.
With 25-45 years left to live on average, you can't get too conservative. You still need to investment methodically to beat inflation and pay for your living expenses. Without investing, your net worth growth rate will likely fall behind the rate of inflation.
You're actively looking to generate passive income streamsor spend more time on optimizing your income producing investments.Assets that provide yield such as high dividend stocks, annuities, and muni bonds start looking appealing.
Net worth growth rate target per annum: 10% – 15%.
56-70 YEARS OLD: NET WORTH MAINTENANCE PHASE
You don't necessarily have to be 56-70 years old to be in the net worth maintenance phase. If you've achieved your desired financial number at a much younger age, staying in the maintenance phase is fine too because you've got all the money you need.
With a minimum net worth return based on the 10-year risk free rate, you are assured to earn at least 4.5% on your net worth every year. On a large number, 4.5% is enough especially now that you'll be able to withdraw from your pre-tax retirement accounts and receive Social Security.
Net worth growth rate target per annum: Risk free rate (3%) – 10%.
71+ YEARS OLD: REDUCTION PHASE
If we spend all our years slaving away at a job and die without enjoying everything life has to offer that would be a crying shame. I conservatively bake in a negative net worth growth rate to allow people to spend their money beyond the risk free rate of return. This is even though the ideal withdrawal rate in retirement doesn't touch principal.
The ideal scenario is to earn enough to happily live off your dividends and interest to guarantee you'll never run out of money. You'll also be able to pass down your assets to the next generation and to charities.
If you find yourself with more money than you need, you can afford to take more risk with your net worth if you'd like. However, by this age I think you've figured out what makes you happy. Making more money likely is not necessary. It's much more rewarding using your money to help other people instead.
By 71, you need to be in the decumulation phase of your life. To die with a lot of money means that you wasted a lot of time and stressful moments. Instead of spending so much time working and stressing during your younger days, you could have enjoyed life more.
Personally, I started my decumulation phase by spending more on food, trips, and housing at 45. It's been tough to change rom a prodigious saver to spending more, but it must be done!
Always Build Your Net Worth
Obviously everybody's lives aren't going to go according to plan or follow my various life stage descriptions. Some may find themselves long term unemployed during their supposed high earning years. Others might have hit the jack pot earlier and decided to de-risk because they're completely satisfied with what they have.
The global pandemic should be considered an anomaly never to be experienced again. At least real estate and stocks did well during a global pandemic. But I don't recommend baking such numbers into your retirement pro forma calculations. It's much better to be conservative and end up with too much than come up short when you are no longer capable of working.
Once you get to a comfortable net worth level I encourage you to shoot for a 10% annual growth rate. My definition of a comfortable net worth is when you become UNCOMFORTABLE losing any more than 15% of your net worth in one year.
A 10% annual growth rate is close to the historical S&P 500 average annual return. 10% is also roughly 3X the risk free rate. This net worth growth target rate ensures that you are staying ahead of inflation. You also aren't putting too much of your net worth at risk.
During bull markets, greed is going to really tempt you to go outside your risk tolerance zone. Definitely be honest with yourself in knowing what you can stomach to lose. During bear markets, fear will make you hoard cash and miss investment opportunities.
You might even develop a notion of wanting to spend all your money before the market loses it all for you! In either environment, try and be disciplined to sticking with a net worth growth target. I hope my net worth growth framework helps!
Track Your Net Worth Carefully
One of the best way to become financially independent isby signing up with Empower. They are a free online platform which aggregates all your financial accounts in one place. This way, you can see where you can optimize your money.
Before Empower, I had to log into eight different systems to track 25+ difference accounts. I then managed my finances on an Excel spreadsheet. Now, I can just log into Empower to see how all my accounts are doing, including my net worth.
A greatfeature is their Portfolio Fee Analyzer. It runs your investment portfolio(s) through its software in a click of a button to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was hemorrhaging!
Finally, they have an amazing Retirement Planning Calculator. It pulls in your real data and runs a Monte Carlo simulation to give you deep insights into your financial future. Empower is free, and less than one minute to sign up.
Grow Your Net Worth With Real Estate
In addition to investing in stocks and bonds, I'm a big proponent of real estate investing. Real estate is a core asset class that has proven to build long-term wealth for Americans.
Growing your net worth in a responsible manner requires more diversification as your net worth grows larger and as you get older.
My favorite two real estate crowdfunding platforms are:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and now manages over $3.3 billion for over 500,000 investors. For most investors, investing in a diversified private real estate fund is the way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I've personally invested $954,000 in real estate crowdfunding across 18 projects. My goal is to take advantage of lower valuations in the heartland of America.
Invest In Private Growth Companies
Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment that will surcharge your net worth growth rate.
Check out theInnovation Fund, which invests in the following five sectors:
- Artificial Intelligence & MachineLearning
- Modern DataInfrastructure
- Development Operations(DevOps)
- Financial Technology(FinTech)
- Real Estate & Property Technology(PropTech)
Roughly 35% of the Innovation Fund is invested inartificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Thanks to real estate and venture capital investments since 2003, my net worth has grown far greater than I could have ever imagined. Suggested Net Worth Growth Target Rates By Age is a FS original post.
