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%.
Is $100 dollars a month good for retirement? ›
Your Retirement Savings If You Save $100 a Month in a 401(k)
If you're age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.
How much will I have if I invest $1000 a month for 30 years? ›
As a rule of thumb, the sooner you start saving for retirement the better. If you start by contributing $1,000 a month to a retirement account at age 30 or younger, your savings could be worth more than $1 million by the time you retire.
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 is $100 a month for 40 years? ›
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%.
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.
How much will $100 a month be worth in 30 years? ›
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 will I have if I invest $100 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.
What will $10 000 be worth in 30 years? ›
Now let's compare that to keeping money in savings. Today's savings account rates aren't the norm, so let's assume that keeping your $10,000 in cash results in an average annual 2% return over 30 years. In that case, you're growing your $10,000 into about $18,000.
How many years it will take you to double your money if you invest $500 at an interest rate of 8% per year? ›
For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
Answer and Explanation: The amount of $100,000 will grow to $432,194.24 after 30 years at a 5% annual return. The amount of $100,000 will grow to $1,006,265.69 after 30 years at an 8% annual return.
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.
What is a good monthly income to retire on? ›
Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
How much should I pay a month for retirement? ›
You should consider saving 10 - 15% of your income for retirement. Sound daunting? Don't worry: your employer match, if you have one, counts. If you save 5% of your income and your boss matches another 5%, you've accomplished a 10% savings rate.
What is a decent amount of money to retire with? ›
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.
