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.
How much would $1000 dollars 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 |
|---|
| 2% | $1,000 | $1,485.95 |
| 3% | $1,000 | $1,806.11 |
| 4% | $1,000 | $2,191.12 |
| 5% | $1,000 | $2,653.30 |
25 more rowsIf 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 invest $100 a month for 20 years? ›
For simplicity's sake, assume that compounding takes place once a year. After 20 years, you will have paid 20 x 12 x $100 = $24,000 into the fund. However, the compounding return will more than double your investment.
How much money do I need to invest to make $1 000 a month? ›
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 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 will $1 be worth in 20 years? ›
Real growth rates
| One time saving $1 (taxable account) |
|---|
| After # years | Nominal value | Real value |
|---|
| 20 | 3.56 | 1.97 |
| 25 | 5.00 | 2.39 |
| 30 | 7.07 | 2.91 |
7 more rowsInvesting 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.
Is $1000 a month in a 401k good? ›
As a rule of thumb, the sooner you start saving for retirement the better. 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.
Is $8000 a month a good retirement? ›
Based on the 80% principle, you can expect to need about $96,000 in annual income after you retire, which is $8,000 per month.
Let's say you want to become a millionaire in five years. If you're starting from scratch, online millionaire calculators (which return a variety of results given the same inputs) estimate that you'll need to save anywhere from $13,000 to $15,500 a month and invest it wisely enough to earn an average of 10% a year.
What is the best investment to get monthly income? ›
Best monthly income plans you should consider
| Monthly Income Plan | Minimum period of investment | Rate of returns |
|---|
| Pradhan Mantri Vaya Vandana Yojana (PMVVY) | 10 years | 7.4% p.a. |
| Systematic Withdrawal Plans (SWPs) | 5 - 40 years | 7-13% |
| Long-Term Government Bonds | 10 yaers or more | 6-9% |
| Mutual Fund Monthly Income Plans | ELSS Funds : 3 years | 8-15% |
5 more rowsApr 10, 2024
But we need to multiply 85 by 6 year which give us: 510. We now add 1,000 and 510 together which gives us 1,510.
How long to become a millionaire investing $1,000 a month? ›
If you invest $1,000 per month, you'll have $1 million in 25.5 years.
| Monthly contribution | Time to reach $1 million with an 8% annual return |
|---|
| $500 | 33.3 years |
| $1,000 | 25.5 years |
| $2,500 | 16.3 years |
| $5,000 | 10.6 years |
1 more rowNov 20, 2023
Bottom Line. 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 can I make $1000 a month passive? ›
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.
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? ›
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 future value of $10 000 in 20 years? ›
As you will see, the future value of $10,000 over 20 years can range from $14,859.47 to $1,900,496.38.
How much will $50 000 be worth in 20 years? ›
Assuming an annual return rate of 7%, investing $50,000 for 20 years can lead to a substantial increase in wealth. If you invest the money in a diversified portfolio of stocks, bonds, and other securities, you could potentially earn a return of $159,411.11 after 20 years.
