Investing money in a brokerage account is a smart financial move, but many people don't realize just how powerful investing is as a wealth-building tool. In fact, buying assets that provide you with reasonable returns is one of the keys to achieving financial independence for the vast majority of people.
To understand just why and how investing can be helpful, let's take a look at what happens if you invest $1,000 a month for a period of 20 years.
Here's what a $1,000 monthly investment could do for you
Investing $1,000 a month for two decades is undoubtedly going to help your money to grow, but the specific amount you'll end up with varies depending on the returns you earn.
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For many people, it's reasonable to expect a 10% average annual return. That's what the (a financial index of around 500 of the largest U.S. companies) has consistently produced over time, so if you don't know how to pick stocks and don't want to try to figure it out, you can just put your money in a fund that mirrors its performance.
If you earn this 10% average annual return over a full two decades while putting in $1,000 per month during that entire time, you could end up with a nest egg of $687,306.72.
Now, you may be thinking that $1,000 a month for 20 years is a lot of money -- and you're right. But it's nowhere near $687,306.72. In fact, the actual value of your contributions alone would be $240,000, so you could end up with about $447,307 more than the amount you put in.
The returns you earn, and compound growth, account for all that extra money. When you invest, you ideally earn a profit on that investment in most years. The gains you make can be reinvested.
So, for example, if you invested $1,200 the first year and made a $120 profit, you'd have $1,320 invested the next year. So you'd now be earning returns on $1,320 instead of $1,200. The returns you get keep growing your balance, so next year you ideally earn even more.
How to find $1,000 a month to invest
Investing $1,000 a month may seem like a big task, as it's a total of $12,000 per year. But the average full-time worker earned $59,540 in the last quarter of 2022. So, investing $12,000 a year would mean putting away about 20% of your annual income if you earn around the average salary.
That's a lot of money, but it's not impossible -- especially if you keep your fixed expenses low. You also have to remember that you can get tax breaks for your savings and your employer might match the contributions you are making. So you don't necessarily have to invest that entire $1,000 a month all by yourself.
Say your employer offers a 401(k) and matches 50% of your contributions to it, up to 6% of your salary. You could earn an annual employer match of $3,572.40 if you earn the average annual salary, assuming you contributed at least that much to your 401(k). So, you would personally only have to contribute $8,427.60 per year to end up with $12,000 in your retirement account.
Now, let's assume you're in the 22% tax bracket, which is where you'd be as a single tax filer with the average income. If you invest $8,427.60 a year, you'd save $1,854.07 on your taxes. So your contributions would already decrease your actual take-home income by $6,573.53. That's about 11% of your annual income which should be very doable. The table below shows what this would look like.
| Your contribution | $8,427.60 |
|---|
| Employer match | $3,572.40 (maximum match based on your salary) |
|---|
| Total contribution | $12,000 |
|---|
| Tax deduction | $1,854.07 (22% of $8,427.60) |
|---|
| Actual cost of contribution after tax savings | $6,573.53 |
|---|
Data source: Author's calculations.
As you can see, if you invest only a little more than 10% of your income, you can be on track to a nest egg of well over half-a-million dollars. So, get started today. Sign up for your company's 401(k) if you have access to one, and ask your employer to make automatic contributions for you from your paycheck. If you don't have a 401(k), arrange to have money taken out of your checking account each month and sent to an IRA. You'll have to contribute a little more without the employer match, but if you can even get close to a $12,000 annual contribution, you should be well on your way to a secure future.
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FAQs
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.
What if I invest $1000 a month in SIP for 20 years? ›
If you invest Rs 1000 for 20 years , if we assume 12 % return , you would get Approx Rs 9.2 lakhs. Invested amount Rs 2.4 Lakh.
How much will I have if I save $1000 a month? ›
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. Here's how much you should expect to have in your account by the time you retire at 67: If you start at 20 years old you should have $2,024,222 saved.
How much will I have if I invest $100 a month for 20 years? ›
How $100 a month can help make you wealthy
| If you invest $100 a month for this many years... | ...this is how much you'll end up with. |
|---|
| 15 | $41,939.68 |
| 20 | $75,603.00 |
| 25 | $129,818.12 |
| 30 | $217,132.11 |
2 more rowsOct 1, 2023
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
How much do I need to invest monthly to be a millionaire in 20 years? ›
Given an average 10% rate of return on the S&P 500, you need to save about $1,400 per month in order to save up $1 million over 20 years. That's a lot of money, but the good news is that changing the variables even a little bit can make a big difference.
How much is $1000 a month for 5 years? ›
In fact, at the end of the five years, if you invest $1,000 per month you would have $83,156.62 in your investment account, according to the SIP calculator (assuming a yearly rate of return of 11.97% and quarterly compounding).
How much money will I have if I invest $1000 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.
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 I have if I save $500 a month for 20 years? ›
What happens when you invest $500 a month
| Rate of return | 10 years | 20 years |
|---|
| 4% | $72,000 | $178,700 |
| 6% | $79,000 | $220,700 |
| 8% | $86,900 | $274,600 |
| 10% | $95,600 | $343,700 |
Nov 15, 2023
If you invest $1,000 per month, you'll have $1 million in 25.5 years.
How much can 100k grow in 10 years? ›
A $100,000 investment can turn into $259,374 in just 10 years' time, and in 30 years' time, your $100,000 investment could be worth $1.7 million. So, if you can save your $100,000 early on, you could easily become a multi-millionaire by retirement, even if you don't contribute much else over the course of your career.
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.
How much money do I need to invest to make $500 a month? ›
Some experts recommend withdrawing 4% each year from your retirement accounts. To generate $500 a month, you might need to build your investments to $150,000. Taking out 4% each year would amount to $6,000, which comes to $500 a month.
How much money do I need to invest to make $400 a month? ›
Buy the index or pick individual stocks for passive income
Right now, the average dividend yield on the S&P/TSX 60 Index is around 3.11%. If you just bought the index, you would need to invest $154,340 to earn an average of $400 per month. Fortunately, you can do even better by picking individual stocks.
How much dividend stock do I need to make $1000 a month? ›
In a market that generates a 2% annual yield, you would need to invest $600,000 up front in order to reliably generate $12,000 per year (or $1,000 per month) in dividend payments.
How much will SIP grow for 20 years? ›
50,000 per month with an annual return of 12%. Thus, a total investment of Rs. 1,20,00,000 will finally give you a corpus of Rs. 5 Crore after 20 years.
What is over a 20 year period an investment of $1000? ›
For example, if you have $1,000 and invest it at 10% per year for 20 years, its value after 20 years is $6,727. This assumes that you leave the interest amount earned each year with the investment rather than withdrawing it.
What is the return of SIP 1000 per month for 10 years? ›
Best SIP Plans for 1,000 Per Month in 2024
| Returns |
|---|
| Fund Name | 3 Years | 10 Years |
|---|
| Pure Stock Fund Bajaj Allianz | 19.12% | 16.85% View Plan |
| Blue Chip Fund HDFC Standard | 16.13% | 14.23% View Plan |
| Growth Super Fund Max Life | 16.37% | 14.01% View Plan |
7 more rowsCalculation of SIP returns
To understand this, let us take an example. A monthly investment of Rs 5,000 for 10 years at an expected rate of return of 12 per cent will earn you Rs 11.61 lakh.
