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. Hope that helps.
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 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 is $500 a month invested for 20 years? ›
Here's how a $500 monthly investment could turn into $1 million
| Years Invested | Balance At the End of the Period |
|---|
| 10 | $102,422 |
| 20 | $379,684 |
| 30 | $1,130,244 |
| 40 | $3,162,040 |
Dec 17, 2023
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.
What happens if you invest $100 a month for 40 years? ›
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 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.
Which bank gives 7% interest on savings accounts? ›
Which Bank Gives 7% Interest Rate? Currently, no banks are offering 7% interest on savings accounts, but some do offer a 7% APY on other products. For example, OnPath Federal Credit Union currently offers a 7% APY on average daily checking account balances up to and under $10,000.
What is the $1000 a month rule for retirement? ›
The $1,000-a-month retirement rule says that you should save $240,000 for every $1,000 of monthly income you'll need in retirement. So, if you anticipate a $4,000 monthly budget when you retire, you should save $960,000 ($240,000 * 4).
When you invest, there's no guaranteed rate of return.
| Time invested | Total money invested | Estimated total balance |
|---|
| 10 years | $12,000 | $17,802.12 |
| 20 years | $24,000 | $58,052.42 |
| 30 years | $36,000 | $149,057.67 |
Oct 15, 2023
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
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.
Is investing $25 a month worth it? ›
No, $25 a month isn't going to provide you with what you need to retire comfortably. But it does get you in the habit, and it can provide you with a foundation for your portfolio. Once you begin earning more money, you can boost your monthly investment and build wealth a little faster.
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.
What if you invested $1000 in Google 20 years ago? ›
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.
How much will SIP grow for 20 years? ›
The formula to determine SIP returns
| Duration | SIP Amount | Future Value |
|---|
| 12 years | 2000 | 6.4 Lakhs |
| 15 years | 2000 | 10.1 Lakhs |
| 18 years | 2000 | 15.3 Lakhs |
| 20 years | 2000 | 20 Lakhs |
6 more rowsOver a 20-year period an investment of $1,000 in common stocks returned an average of 11% in nominal terms and 4% in real terms. At the end of the 20 years, the portfolio value was: $3,679.19 in real terms. $1,800 in real terms. $8,062.31 in nominal terms.
What is the return of 1000 SIP for 10 years? ›
Best SIP Plans for 1,000 Per Month in 2024
| Returns |
|---|
| Fund Name | 5 Years | 10 Years |
|---|
| Active Fund QUANT | 27.80% | 23.96% |
| Large and Mid Cap Fund QUANT | 23.27% | 22.69% |
| Flexi Cap Fund PARAG PARIKH | 23.90% | 20.22% |
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.
