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 happens if you invest $1,000 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.
What if you invested $1000 in Microsoft 20 years ago? ›
Buying $1000 In MSFT: If an investor had bought $1000 of MSFT stock 20 years ago, it would be worth $16,279.07 today based on a price of $413.00 for MSFT at the time of writing.
How much will I have 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.
What happens if you 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.
How much money can I make if I invest $1000 a month? ›
Investing $1,000 a month for 30 years, with an average annual return of 7%, can yield a total of approximately $1.22 million. This calculation shows how regular, long-term investments can grow significantly over time, thanks to compound interest.
How much do I need to invest to be a millionaire in 20 years? ›
This isn't easy, but finding the extra time may be easier than finding an extra $12,000 per year. 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.
Can you survive on $1,000 dollars a month? ›
Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.
How much do you need to invest a month to become a millionaire? ›
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.
Is AMZN a buy right now? ›
Today, Amazon trades for 3.4 times sales and while that is a lot more expensive than it was, it's right in line with the historical average over the last 10 years. Amazon's revenue growth has returned to the double digits and given the recent bottom-line improvements, Amazon seems fairly priced today.
NEW YORK, Jan 24 (Reuters) - Microsoft's (MSFT.
Is Microsoft still a buy? ›
Microsoft has a conensus rating of Strong Buy which is based on 33 buy ratings, 1 hold ratings and 1 sell ratings. The average price target for Microsoft is $474.08.
How much should I invest a month to become a millionaire in 10 years? ›
Now, let's consider how our calculations change if the time horizon is 10 years. If you are starting from scratch, you will need to invest about $4,757 at the end of every month for 10 years. Suppose you already have $100,000. Then you will only need $3,390 at the end of every month to become a millionaire in 10 years.
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 do I need to invest a month to be a millionaire in 5 years? ›
Saving a million dollars in five years requires an aggressive savings plan. 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.
What will $10 000 be worth in 30 years? ›
Over the years, that money can really add up: If you kept that money in a retirement account over 30 years and earned that average 6% return, for example, your $10,000 would grow to more than $57,000. In reality, investment returns will vary year to year and even day to day.
What will the investment be worth in 20 years if $1000 is invested so that it grows at the rate of 10 per year? ›
Compounding. Compounding is the impact of the time value of money (e.g., interest rate) over multiple periods into the future, where the interest is added to the original amount. 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.
