What If Preston Waters Had Invested His Blank Check?
If you grew up in the 90’s, I’ve got one question for you: What would you do with a blank check?
Chances are high that you’re familiar with the 1994 cult classic Disney movie Blank Check. In the movie, Preston Waters comes into possession of—ok, he steals—a blank check. Naturally, he does what any 12 year old would do. He writes himself a check for a million dollars.
Preston then proceeds to blow through his fortune by spending on things such as a mansion, bouncy houses, and tons of ice cream.
That all sounds great to us too, but because we’re an investment company, we have to wonder what would have happened if Preston had invested his million dollars instead of spending it.
First, A Big Bold Disclaimer
We wrote this article for fun, and the example we are using is purely hypothetical. We are using the plot of the movie only to illustrate the power of the potential long-term growth that you can experience through investing.
Although the stock market has historically trended upwards over time, past performance doesn’t predict or guarantee future performance. The market has also behaved differently depending on which past timeframe you’re looking at, and in this example, we are only looking at one specific 25-year period. It’s worth noting that the 25-period included good times and bad times, and really bad times, such as the Great Recession of 2008. When you’re investing for any amount of time, it’s likely you’ll experience ups and downs, too.
Finally, there is always risk when investing. You’ve heard the phrase “more risk, more reward,” right?
How He Could Have Invested It
Preston wrote himself a million dollar check in 1994. Ah, it was a good year for TV and movies—think Mighty Morphin Power Rangers and The Lion King. We don’t think either the Blue Power Ranger or Simba had any money to invest, though, so we’ll stick with Preston.
Let’s say that he invested his million dollar check on Jan. 1, 1995, and what we really want to know is what his investment would be worth today, on March 1, 2020.
We’ll pretend that he invested the entire million dollar check straight into the fund SPY, which is an exchange-traded fund that tracks the S&P 500 index. The S&P 500 includes performance of the biggest 500 U.S. companies that are listed on the U.S. stock exchange. Aptly named, right?
Here’s the kicker. Between 1994 and now, SPY has returned about +925%.
How Much Money He Could Have Now
Now, SPY’s 925% return over the last 25 years means that if he had invested his million dollars, he’d have $9,250,000 right now. Yes, $9,250,000: you read that right. No typos here—we are professionals!
Spending $1,000,000 vs Investing $1,000,000
He could have ended up with over nine times as much as he stole if only he had the patience to wait 25 years. He could have had nine times more ice cream! Mistakes were clearly made. But, what else would you expect from a 12 year old?
Of course, Preston would have to pay long-term capital gains taxes on his earnings if he were to withdraw it all today. It’s the tax you pay when you sell your investments for more than you paid for them. The current rates range between 0% and 20%, depending on your income level. That means that his taxes could be anywhere from $0 to $1,850,000.
He would also have other options besides withdrawing—he could keep letting his portfolio grow, or, he could donate some of his investments to charity and neither he nor the charity would have to pay any taxes.
We’re Not Not 12 Anymore—Let’s Do It Better
While we adults all still like ice cream, we know something that Preston didn’t—that there are more important things in life that we are going to want to spend our money on down the road. Whether it’s a house, a vacation, or the retirement of your dreams, it’s clear that we shouldn’t follow in Preston’s footsteps.
Obviously we aren’t going to steal, but beyond that, we should be investing our hard-earned savings and our windfalls so that we can ride out the ups and downs and perhaps someday end up with nine times more.
If you’ve never invested before, don’t worry, because we help make it easy. All you have to do is set up investment goals for each thing you want for your future self, and we’ll tell you how much you should be depositing over time. We’ll take your cash and invest it in a diversified portfolio that our experts have put together—all for a low fee of 0.25% per year.
How Investor Sentiment Has Evolved During Covid-19
In the second part of a three-part series, Betterment examines how investors used their income and stimulus checks throughout the COVID-19 crisis.
How Betterment’s investment approach helps 401(k) investors
Dan Egan, Betterment’s VP of Behavioral Finance and Investing, answers the most common investment questions asked from 401(k) plan sponsors.
Displaying Performance to Shape Better Investor Behavior
Understanding your accounts’ performance can feel complicated. We’re advancing how we display performance to help answer your questions and make stronger investment decisions.
How would you like to get started?
Manage spending with Checking
Checking with a Visa® debit card for your daily spending.
Save cash and earn interest
Grow your cash savings for general use for upcoming expenses.
Invest for a long-term goal
Build wealth or plan for your next big purchase.
Invest for retirement
Set up traditional, Roth, or SEP IRAs to save for the golden years.