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. This is why retirement savers are encouraged to start investing early, preferably no later than age 25 or so, in order to have a comfortable nest by the time they reach retirement age about 65. A financial advisor can you develop an investing strategy that fits your retirement plan.
The $200 Monthly Investing Plan
The projections for this model portfolio assume a 10% annual rate of return, which may be more or less than your own investments actually generate. They also don’t account for the impacts of taxes, fees and other factors that can negatively affect the size of your portfolio. For these reasons and a few others, your own results are likely to vary from those in this theoretical example.
Any investor can, however, count on the powerful effect of compounding. A small amount such as $200 can become a six- or even seven-figure amount due mostly to the effect of compound interest. This is the return that is generated from previously generated earnings.
Before too many years go by, the interest generated by your portfolio of investments will outstrip the amount of your monthly contributions. For example, in the eighth year of this $200-a-month investment plan, the total model portfolio will be worth $29,680. That’s $5,178 more than it was worth the previous year, which is more than twice the $2,400 in monthly contributions that were added. In this hypothetical example, after only eight years, compound interest will be generating $2,688. That’s $288 more than more than the total monthly contributions for the year.
Investment Plan Variables
A model portfolio is unlikely to perform identically to a real-world portfolio. One important variable is the rate of return. While this example consistently earns a precise 10% annually, in reality return is certain to fluctuate. Some years it may be significantly more than 10%, while in others is much less. Negative returns are also possible over the course of a year.
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.
In addition to rate of return, the other variable that’s been used so far is investment horizon. This is the time in years that will go by before you expect to need the money you are accumulating in your portfolio. Retirement saving usually involves a long investment time horizon measured in decades. Shorter time horizons for goals such as buying a home give compound interest less time to work and yield a smaller total sum.
Asset allocation is another factor, one that is strongly influenced by both investment horizon and your personal risk tolerance. Some assets, such as stocks, yield average 10% annual returns over periods of several decades. However, stocks are risky, meaning that they are subject to unpredictable downturns that may be severe and sometimes long-lasting.
Other assets, such as bonds, are less likely to fluctuate in value but also provide lower long-term returns of about 5%. Most investors have a blend of stocks, bonds and other assets in their portfolios, producing a lower but more stable return. Stability is important because if an investor must liquidate a portfolio for any reason when the market is down, is will seriously reduce total return.
More concerns for the long-term investor include taxes and fees. Federal income taxes can consume up to 37% of returns at the top marginal rate if they are treated as ordinary income, or 15% if taxed as capital gains. And even small fees have a surprisingly large effect on performance over time. Managing an investment portfolio wisely can reduce the impact of both of these by, for example, using low-fee exchange-traded funds (ETFs) and investing within a tax-advantaged account such as an IRA.
Bottom Line
If you can invest $200 each and every month and achieve a 10% annual return, in 20 years you’ll have more than $150,000 and, after another 20 years, more than $1.2 million. Your actual rate of return may vary, and you’ll also be affected by taxes, fees and other influences. But the outcome of this investment model shows how compounding interest and consistent savings can produce a comfortable nest egg by retirement, providing you start soon enough.
Investment Planning Tips
- A financial advisor can help you develop a budget to free up $200 to invest each month. It doesn’t have to be hard to find a suitable financial advisor.SmartAsset’s free tool matches you with up to three financial advisorswho serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s Investment Calculator was used to produce most of these estimated results. The free, online tool lets you input any starting amount, contribution amount, contribution frequency, rate of return and investment time horizon. You can use this tool to produce what-if scenarios and get an idea of how well your long-term investing plan will turn out.
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FAQs
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 invest $200 a month for 10 years? ›
How that works, in practice: Let's say you invest $200 every month for 10 years and earn a 6% average annual return. At the end of the 10-year period, you'll have $33,300. Of that amount, $24,200 is money you've contributed — those $200 monthly contributions — and $9,100 is interest you've earned on your investment.
How much will I have if I invest $300 a month? ›
If you invest $300 each month, that comes out to $3,600 over the course of a full year. And after 30 years of investing, that would total $108,000. But with the power of compounding, your portfolio's value could rise far higher than that.
How much do I need to invest to make $100 a month? ›
A fixed annuity typically provides a set rate of return over a determined time period. If you have a fixed annuity with a starting principal of $10,000 and a rate of 5%, you could expect to get around $100 a month for 10 years. A variable annuity may have a rate that fluctuates depending on market performance.
How much to invest to make $1,000 a month? ›
Reinvest Your Payments
The truth is that most investors won't have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets. And that's okay.
How much should I invest to make $500 a month? ›
To generate $500 a month in passive income you may need to invest between $83,333 and $250,000, depending on the asset and investment type you select. In addition to yield, you'll want to consider safety, liquidity and convenience when selecting the investments you'll employ to provide monthly passive income.
How much do I need to invest a month to be a millionaire in 5 years? ›
Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.
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 |
|---|
| 10% | $1,000 | $6,727.50 |
| 11% | $1,000 | $8,062.31 |
| 12% | $1,000 | $9,646.29 |
| 13% | $1,000 | $11,523.09 |
25 more rowsFor example, it takes $1,400 per month to reach $1 million in 20 years. However if you can find 30 years to save, it only takes $475 per month to reach the same goal. This isn't easy, but finding the extra time may be easier than finding an extra $12,000 per year.
What if I invested $1000 in S&P 500 10 years ago? ›
Over the past decade, you would have done even better, as the S&P 500 posted an average annual return of a whopping 12.68%. Here's how much your account balance would be now if you were invested over the past 10 years: $1,000 would grow to $3,300. $5,000 would grow to $16,498.
Its stock price today is $150.93, which is an increase of 5,911% during this period. If you had invested $1,000 in Google stock on Aug. 19, 2004, today, you would have $60,107.
What is a good amount to invest monthly? ›
How much should you be investing? Some experts recommend at least 15% of your income. Setting clear investment goals can help you determine if you're investing the right amount.
Is saving $$200 a month good? ›
By contributing $200 each month, your fund will add up throughout the year -- $2,400 is a solid amount of cash. Since most checking accounts don't earn interest, keeping your extra funds in a savings account is smart.
Is investing $200 a month enough? ›
Investing £200 per month over the long term could lead to more wealth than you'd probably imagine. For example, a £200 monthly investment with a 7% yearly return could leave you with over £104,000 in 20 years or more than £360,000 in 35 years.
How to invest $100 dollars for quick return? ›
What are some low-risk ways to invest $100?
- High-yield savings accounts. Compared to traditional savings accounts, these accounts offer higher interest rates, which can help your money grow faster.
- Certificates of deposit (CDs). ...
- Treasury bonds.
Don't let your current financial situation keep you from saving. Even a small amount of money saved can add up. Setting aside $200 per month is an excellent place to start.
What if I invest $200 a month for 30 years? ›
If you're investing $200 per month while earning a 10% average annual return, you'd have around $395,000 after 30 years. While that's a long time to invest, keep in mind that this investment requires next to no effort. All the stocks are chosen for you, and you never need to decide when to buy or sell.
What if I invest $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.
How much to invest per month to become a millionaire in 5 years? ›
So, what do you need to do to have $1 million after five years? If you have never invested before (you have zero balance in your investment account), you need to invest approximately $12,821 at the end of every month for the next five years.
