You don't need to invest in risky stocks to make a lot of money.
It's hard to beat the market. There are people who manage the feat, but they're a tiny minority.
Interestingly, and maybe not surprisingly, it's easier to beat the market when the market tanks. So in 2021, when the market gained 29%, 85% of money managers underperformed the index. In 2022, when the S&P 500 lost 18%, only 51% of money managers underperformed. And if that seems like success, remember that it's still more than half!
If that still sounds impressive, consider that the market gains annually far more frequently than it loses. That means that overall, the market is much more likely to outperform any actively managed funds.
If you can't beat them, join them
Even Warren Buffett, one of the tiny few who have done it, advises most people to invest in an index fund that mirrors the S&P 500. Over time, it has been one of the most powerful vehicles for creating wealth. It's also less stressful than picking out what you hope will be winners. Buffett has said that he's advised his wife to invest all her money in the S&P 500 after his death.
It's simple to calculate how much money you'd have today if you did just that 20 years ago with $10,000.
^SPX data by YCharts
The total would be more than $65,000, which implies a return of 555%. This includes all dividends, by the way. You'd make this much without worrying about which stocks are going which way or whether to pull from one and add to another.
Of course, you can invest this way in addition to owning a portfolio of single stocks, just like Buffett's Berkshire Hathaway (BRK.A -1.27%) (BRK.B -1.35%). A diversified group of about 25 stocks chosen with care, plus or including an investment in an index fund, provides excellent chances of creating a healthy and market-beating stock portfolio.
But if all you did was invest in the market through an index fund, you'd be just fine.
Don't discount monthly contributions
Here's where it gets even better. If you had made monthly contributions over that time, you'd have made much more money. Over the past 20 years, the index has gained a total average annual return of around 10%. If you initially invested $10,000 and added $100 per month, you'd have $136,000 today.
Image source: Investor.gov.
For those who did the math, yes, you added $24,000 over those 20 years. But since they haven't been invested for the full 20 years, they haven't borne the full fruit of compound interest -- yet.
Why it makes sense to invest in the market
One of Warren Buffett's recurring themes when he talks to shareholders is his confidence in America. And investing in the stock market demonstrates confidence in the potential of the U.S. and its businesses.
There will always be events that affect the market in the short term, whether for good or for bad. They're almost never predictable. Consider the COVID-19 pandemic, practically the epitome of a black swan event, or an event that you cannot predict. Investing in the market gives you the power of the long-term story that America brings to the table, and to your wallet.
Living through this period of severe inflation might hammer this home. There have been worse times, even periods of hyperinflation. Those are rare, and they may not come to pass again in your lifetime. But having funds in an S&P 500 index fund provides security despite any challenges in the environment, and it still offers incredible long-term gains.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
FAQs
Over the past 20 years, the index has gained a total average annual return of around 10%. If you initially invested $10,000 and added $100 per month, you'd have $136,000 today. Image source: Investor.gov. For those who did the math, yes, you added $24,000 over those 20 years.
What is the average return of the S&P 500 over the past 20 years? ›
The historical average yearly return of the S&P 500 is 9.74% over the last 20 years, as of the end of February 2024. This assumes dividends are reinvested.
How much is $10,000 invested in the S&P 500 in 1980? ›
Craziest thing I learned recently: $10,000 invested in the S&P 500 in 1980 would be worth over $1M today.
How much money would I have if I invested in the S&P 500 in 2000? ›
If you invested $100 in the S&P 500 at the beginning of 2000, you would have about $488.05 at the end of 2023, assuming you reinvested all dividends. This is a return on investment of 388.05%, or 6.93% per year.
How much money do I need to invest to make $1 000 a month? ›
To make $1,000 per month on T-bills, you would need to invest $240,000 at a 5% rate. This is a solid return — and probably one of the safest investments available today. But do you have $240,000 sitting around? That's the hard part.
What is the average return for the S&P 500 last 30 years? ›
Average Market Return for the Last 30 Years
Looking at the S&P 500 for the years 1993 to mid-2023, the average stock market return for the last 30 years is 9.90% (7.22% when adjusted for inflation).
What is the average return of the S&P 500 over the last 15 years? ›
Overall, the S&P 500 grew at a compound annual growth rate of 13.8% over the last 15 years. Adjusting for inflation, the index grew 11.2% per year during that period.
How much is $10,000 invested in the S&P 500 worth? ›
Assuming an average annual return rate of about 10% (a typical historical average), a $10,000 investment in the S&P 500 could potentially grow to approximately $25,937 over 10 years.
What if you invested in the S&P 500 20 years ago? ›
If you had made monthly contributions over that time, you'd have made much more money. Over the past 20 years, the index has gained a total average annual return of around 10%. If you initially invested $10,000 and added $100 per month, you'd have $136,000 today. Image source: Investor.gov.
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 |
|---|
| 6% | $1,000 | $3,207.14 |
| 7% | $1,000 | $3,869.68 |
| 8% | $1,000 | $4,660.96 |
| 9% | $1,000 | $5,604.41 |
25 more rowsIf you invest $100,000 at an annual interest rate of 6%, at the end of 20 years, your initial investment will amount to a total of $320,714, putting your interest earned over the two decades at $220,714.
Does the S&P 500 pay dividends every month? ›
Does the S&P 500 Pay Dividends? The S&P 500 is an index, so it does not pay dividends; however, there are mutual funds and exchange-traded funds (ETFs) that track the index, which you can invest in. If the companies in these funds pay dividends, you'll receive yours based on how many shares of the funds you hold.
How much money do I need to invest to make $3,000 a month? ›
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
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.
How to make 1k a month passively? ›
Passive Income: 7 Ways To Make an Extra $1,000 a Month
- Buy US Treasuries. U.S. Treasuries are still paying attractive yields on short-term investments. ...
- Rent Out Your Yard. ...
- Rent Out Your Car. ...
- Rental Real Estate. ...
- Publish an E-Book. ...
- Become an Affiliate. ...
- Sell an Online Course. ...
- Bottom Line.
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.
What is the average return of the S&P last 40 years? ›
Stock Market Historical Returns
40 Years (1982 – 2022): 11.6% annual return. 30 Years (1992 – 2022): 9.64% annual return. 20 Years (2002 – 2022): 8.14% annual return.
What is the 10 year total return on the S&P 500? ›
S&P 500 10 Year Return is at 180.6%, compared to 174.1% last month and 161.9% last year.
How much does the S&P 500 return annually on average? ›
Bottom Line. Since 1957, the S&P 500's average annual rate of return has been approximately 10.5% (through March 2023) and around 6.6% after adjusting for inflation.
What is the return of the S&P 500 index fund over 10 years? ›
The S&P 500 has gained about 10.7% on average annually since it was introduced in 1957. The index has done slightly better than that in the past decade, returning about 12.39% annually. Returns may fluctuate widely each year, but holding onto investments over time can help.
