You'll often hear that it's important to save and invest money on a consistent basis. But when you're limited on funds, that's not always an easy thing to do.
These days, many people are having a hard time covering their basic living expenses due to inflation. So the idea of carving out thousands of dollars a year to pump into your brokerage account may, frankly, be out of the question.
But here's the good news. You don't actually have to invest a ton of money on a monthly basis to build up a lot of wealth over time. In fact, you can do really well for yourself even if you're only investing $100 a month.
It's a matter of how you're investing
A $100 monthly investment over 40 years could leave you more than $500,000 richer -- if you choose the right investments, that is. Over the past 50 years, the stock market has delivered an average annual 10% return (before inflation), as measured by the performance of the S&P 500 index. So if you load up your portfolio with S&P 500 stocks or ETFs, then there's a good chance your portfolio will deliver a similar return.
In that case, investing $100 a month over 40 years will leave you with an ending balance of around $531,000. Meanwhile, you'll only be contributing a total of $48,000 to get to that point. So all told, you're looking at a $483,000 gain, which is pretty impressive.
But to be clear, this sort of gain generally won't be possible if you play it too safe in your portfolio and stick to more conservative assets, like bonds. In fact, let's say a bond-heavy portfolio gives you a 5% average annual return over time, which is pretty generous since, in reality, you're probably looking at a bit less. In that case, investing $100 a month over 40 years will leave you with roughly $145,000. That's only a $97,000 gain.
Stocks are worth the risk in the long run
Some people are hesitant to invest in stocks because they tend to be a lot more volatile than bonds. And that's understandable.
But one thing you should know is that if you don't invest in stocks, you run a different risk -- winding up with a lot less money at the end of your savings window. In fact, let's say you're investing that $100 a month over 40 years for your retirement. A $145,000 nest egg may not go very far, whereas a $531,000 nest egg could make it so you're able to cover your expenses and live comfortably without financial worries.
If you're truly scared to put your money into stocks, consider adding S&P 500 ETFs to your portfolio. This way, you're investing in the broad market rather than taking a chance on a few individual companies.
Plus, this option allows you to build a portfolio that's instantly diversified. And diversification is an important part of growing wealth while minimizing losses along the way.
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FAQs
According to Ramsey's tweet, investing $100 per month for 40 years gives you an account value of $1,176,000. Ramsey's assumptions include a 12% annual rate of return, which some critics have labeled as optimistic given that the long-term average annual return of the S&P 500 index is closer to 10%.
How much is $100 a month for 40 years? ›
It's a matter of how you're investing
In that case, investing $100 a month over 40 years will leave you with an ending balance of around $531,000. Meanwhile, you'll only be contributing a total of $48,000 to get to that point. So all told, you're looking at a $483,000 gain, which is pretty impressive.
How much will I have if I invest $100 a month for 20 years? ›
For simplicity's sake, assume that compounding takes place once a year. After 20 years, you will have paid 20 x 12 x $100 = $24,000 into the fund. However, the compounding return will more than double your investment.
Is $100 a month good for retirement? ›
It might seem like $100 a month isn't a lot, but it can add up over time. You can also split it into smaller amounts and use it on multiple things, especially if those things don't cost much individually. “We advise diversifying $100 monthly in retirement,” said Adam Garcia, the owner of The Stock Dork.
What if you invest 200 a month for 30 years? ›
Key Points. The Vanguard Growth ETF is one of many great growth-oriented funds that can deliver market-beating returns. If you can invest $200 per month for 30 years, thanks to the power of compounding, you could end up with a portfolio of more than $1 million.
How much is $500 a month invested for 40 years? ›
The short answer to what happens if you invest $500 a month is that you'll almost certainly build wealth over time. In fact, if you keep investing that $500 every month for 40 years, you could become a millionaire. More than a millionaire, in fact.
How to invest $100 dollars for quick return? ›
What Are Your Options When Investing $100?
- Start a Side Hustle. ...
- Enroll in a Course or Certification. ...
- Real Estate. ...
- Fractional Shares. ...
- Open a Savings Account. ...
- Invest in Bonds. ...
- P2P Lending Sites. ...
- Stocks/Mutual Funds.
Investing $100 per month, with an average return rate of 10%, will yield $200,000 after 30 years. Due to compound interest, your investment will yield $535,000 after 40 years. These numbers can grow exponentially with an extra $100. If you make a monthly investment of $200, your 30-year yield will be close to $400,000.
How much do I need to invest to be a millionaire in 30 years? ›
Assuming that you can earn this 10% average return over your investing career, if you are getting started investing this year and you want to become a millionaire in 30 years, you would need to invest $506.60 per month. This amount may seem like a lot, but it may actually be pretty doable for many people.
How much money do I need to invest to make $4000 a month? ›
Making $4,000 a month based on your investments alone is not a small feat. For example, if you have an investment or combination of investments with a 9.5% yield, you would have to invest $500,000 or more potentially. This is a high amount, but could almost guarantee you a $4,000 monthly dividend income.
That means that even if you're not one of those lucky few who have $1 million or more socked away, you can still retire well, so long as you keep your monthly budget under $3,000 a month.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
Is $2,000 a month enough to retire on? ›
Retiring on a fixed income can seem daunting, but with some planning and commitment to a frugal lifestyle, it's possible to retire comfortably on $2,000 a month. This takes discipline but ultimately will allow you to have more freedom and happiness in your golden years without money worries.
What happens if you invest $1,000 a month for 20 years? ›
Investing $1,000 a month for 20 years would leave you with around $687,306. The specific amount you end up with depends on your returns -- the S&P 500 has averaged 10% returns over the last 50 years. The more you invest (and the earlier), the more you can take advantage of compound growth.
How much will $1,000 invested be worth in 20 years? ›
As you will see, the future value of $1,000 over 20 years can range from $1,485.95 to $190,049.64.
| Discount Rate | Present Value | Future Value |
|---|
| 6% | $1,000 | $3,207.14 |
| 7% | $1,000 | $3,869.68 |
| 8% | $1,000 | $4,660.96 |
| 9% | $1,000 | $5,604.41 |
25 more rowsYou can become a millionaire by investing $500 per month consistently for almost 30 years. This is a low-effort strategy, but you can achieve this goal even faster through the right combination of individual stocks. Should you invest $1,000 in Vanguard S&P 500 ETF right now?
How much will I have if I invest $$200 a month for 40 years? ›
Many retirement planners suggest using a more modest annual return of 6% when forecasting the long-term performance of a portfolio. At 6%, after 20 years the $200-a-month portfolio would be worth $93,070. After 40 years earning the same return, your model portfolio would be up to about $398,000.
What happens if you save $100 dollars a month for 10 years? ›
But by depositing an additional $100 each month into your savings account, you'd end up with $29,648 after 10 years, when compounded daily. The interest would be $7,648 on total deposits of $22,000.
How much is $100 a month for a year? ›
$100 monthly is how much per year? If you make $100 per month, your Yearly salary would be $1,200. This result is obtained by multiplying your base salary by the amount of hours, week, and months you work in a year, assuming you work 40 hours a week.
How much will I have if I save $100 a month for 10 years? ›
Year 10: Saving £100 a month for ten years would result in a total savings of around £12,398.
