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THE SCENARIO
For the past 5 years, I've been paying an extra $10 per month to increase the speed of my internet connection at home from 15 MB/s to 50 MB/s. During those years, the S&P 500 index has
increased in value an average* of 11.69% per year.
The question: If I'd invested that extra $10 per month into the S&P 500** for the last 5 years instead of paying for higher internet speed, how much would my account be worth today?
* There are different ways to determine averages, but since returns compound on each other, I used a multiplication-followed-by-root method to determine the average rather than just adding them all up and dividing by 5.
** Assume that I can invest in the index directly with no broker commissions, fees, or loads.
THE SOLUTION
This one is pretty straightforward.
First things first, make sure the calculator is using 12 Payments per Year.
N: 60 (5 years is 5 x 12 = 60 months)
I/YR: 11.69 (The S&P 500 has increased in value an average of 11.69% over the past 5 years)
PV: 0 (The account would have started with nothing in it)
PMT: -10 (I would have contributed $10 per month to the account)
FV: (This is what I'm trying to find)
If I'd invested the money instead of spending it on faster internet, my account would have $809.95 in it today.
What do you think? Is 5 years of faster internet worth $810 to you? Are there things you're paying for month-to-month that you could consider cutting out and investing the savings instead? Let us know in the comments!
