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 money will you have if you invest $100 a month for 40 years? ›
On average, the stock market yields between an 8% to 12% annual return. 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.
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.
How much would you have if you saved $100 a month? ›
If you save $100 monthly for an entire year, you'll have $1,200 in the bank. But if you keep your savings in a savings account, you'll also earn interest. After one year of keeping $1,200 in a high-yield savings account with a 4.5% APY, you'll earn $54 in interest.
How much is $200 a month for 20 years? ›
Investing as little as $200 a month can, if you do it consistently and invest wisely, turn into more than $150,000 in as soon as 20 years. If you keep contributing the same amount for another 20 years while generating the same average annual return on your investments, you could have more than $1.2 million.
What does Dave Ramsey say about investing $100 a month? ›
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%.
Can you live on $3,000 a month in retirement? ›
Top the amount with 401(k) savings, living on $3,000 a month after taxes is possible for a retiree. For those who only have social security benefits to rely on, there are many places where they can retire on their checks both in the USA and around the world.
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 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.
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.
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 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.
How much will I have if I invest $100 a month for 30 years? ›
For simplicity's sake, assume compounding takes place once per year in January. After a 30-year period, thanks to compound returns and a small monthly contribution, his portfolio will grow to $186,253.14 (as compared to $50,313.28 without the monthly contributions).
How to save $1000000 in 30 years? ›
To save a million dollars in 30 years, you'll need to deposit around $850 a month. If you make $50k a year, that's roughly 20% of your pre-tax income. If you can't afford that now then you may want to dissect your expenses to see where you can cut, but if that doesn't work then saving something is better than nothing.
