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 |
|---|
| 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 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.
What happens if you invest $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 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.
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 $1 m be worth in 40 years? ›
The value of the $1 million today is the value of $1 million discounted at the inflation rate of 3.2% for 40 years, i.e., 1 , 000 , 000 ( 1 + 3.2 % ) 40 = 283 , 669.15.
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.
Is $1000 a month in a 401k good? ›
Having more financial cushion in retirement will be helpful, especially in times of rising costs and high inflation. “Achieving the $1,000 a month can provide a level of financial security, as it covers a portion of regular expenses,” Ashton said.
What is $100 a month for 20 years? ›
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
Investing $1,000 per month for 30 years at a 6% rate of return hypothetically will give you an investment portfolio worth more than $1 million. This result is hypothetical because it doesn't take into account taxes, fees, varying rates of return and other variables, such as extended market downturns.
Can you survive on $1000 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 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
For example, it takes $1,400 per month to reach $1 million in 20 years. However if you can find 30 years to save, it only takes $475 per month to reach the same goal. This isn't easy, but finding the extra time may be easier than finding an extra $12,000 per year.
How much do I need to invest a month to become a millionaire in 20 years? ›
How To Save a Million Dollars in 20 Years
| Current Savings | Inflation Rate | Monthly Savings Goal |
|---|
| $0 | 3% | $1,959 |
| $10,000 | 3% | $1,883 |
| $100,000 | 3% | $1,201 |
Nov 9, 2023
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.
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.
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.
How much will 100k be worth in 30 years? ›
Answer and Explanation: The amount of $100,000 will grow to $432,194.24 after 30 years at a 5% annual return. The amount of $100,000 will grow to $1,006,265.69 after 30 years at an 8% annual return.
How much is money worth in 2050? ›
The dollar had an average inflation rate of 2.74% per year between 2021 and 2050, producing a cumulative price increase of 119.04%. The buying power of $66,928 in 2021 is predicted to be equivalent to $146,596.42 in 2050. This calculation is based on future inflation assumption of 2.50% per year.
