Setting aside whatever money you can into a well-diversified growth fund can be a move you'll thank yourself for in the future.
You don't need thousands of dollars to start investing and saving for retirement. Breaking it down to a few hundred dollars per month that you invest into stocks can make all the difference in your retirement years. Whether it's reducing the number of times you eat out or go to the movies, collectively those changes can free up money in your budget, which could go a long way.
Here's how setting aside $200 per month for 30 years and investing it can lead to more than $1 million by the time you retire.
Investing in growth funds can lead to great returns
A big challenge for many people when it comes to investing is that it can be overwhelming and difficult to know which stocks to buy or not to buy. Exchange-traded funds (ETFs), however, can drastically simplify that equation for you. By giving you exposure to a diverse a mix of stocks, you no longer need to worry about tracking individual stocks and determining whether you need to change anything in your portfolio.
Instead, you can invest in funds which focus on long-term growth. One such example is the Vanguard Growth ETF (VUG 0.98%).
This ETF has a small expense ratio of just 0.04%, which is important in the long run, as it means fees won't take out a big chunk of your overall returns. It focuses on investing in large U.S. stocks where there are strong growth opportunities. This is by no means the only growth fund that may be suitable for a long-term investing strategy, but it's definitely one of the better ones to consider.
The Vanguard Growth ETF contains more than 200 stocks, with its largest holdings being Apple, Microsoft, and Amazon. Approximately 55% of the fund's holdings are in tech stocks, with consumer discretionary stocks being a distant second, accounting for 20%. Over the past 10 years, the fund has generated total returns (including dividends) of 280%, which is far better than the S&P 500's total returns of 217% over the same period.
The path to $1 million
The ETF's returns over the past 10 years average out to a compounded annual growth rate of 14.3%. The good news is you would need less than that to get to $1 million if you invest $200 per month.
If you were to invest $200 per month over the course of the next 30 years, that would equate to a total investment of $72,000. That's significant, but it's through the effects of compounding that would get your portfolio to a more than $1 million valuation.
For a growth-oriented fund such as the Vanguard Growth ETF to get your portfolio to more than $1 million after 30 years, it would need to grow at an average rate of at least 13.6% -- that's lower than its 10-year average annual return, although it is above the longer-term growth rate of the broader stock market as a whole. This assumes that you continue to invest $200 per month into the fund.
Here's a breakdown of what your portfolio's balance would look like at every five years under this scenario:
| Year | Balance |
| Five | $17,246.38 |
| 10 | $51,158.69 |
| 15 | $117,841.92 |
| 20 | $248,964.03 |
| 25 | $506,795.09 |
| 30 | $1,013,779.41 |
Calculations by author.
The power of compounding comes in later years, when you've built up a large balance. At that stage, a 13.6% increase every year will have a much greater effect than when your portfolio is much smaller.
Thus, a key part to making this strategy work is ensuring that you expect to have 30 years or more to go until retirement. You can still generate a great return even if you don't, but to get to $1 million with a $200 monthly investment, you'll ideally want to have around that number of investing years left. If you don't, you could offset this by investing more money each month.
Investing early and often is the key
Regardless of which ETF you may want to invest in, focusing on one that invests in growth stocks can put you into a great position to profit from strong returns in the future. As long as you commit to investing $200 per month or whatever you can afford, you'll put yourself into a much better financial position by the time you retire.
Ideally you can get to the $1 million mark, but even if you don't, saving and putting aside money every month into a diversified fund such as the Vanguard Growth ETF can be a decision that pays off significantly in the future.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Vanguard Index Funds - Vanguard Growth ETF. The Motley Fool has a disclosure policy.
FAQs
The path to $1 million
What if I invest $$200 a month for 10 years? ›
How that works, in practice: Let's say you invest $200 every month for 10 years and earn a 6% average annual return. At the end of the 10-year period, you'll have $33,300. Of that amount, $24,200 is money you've contributed — those $200 monthly contributions — and $9,100 is interest you've earned on your investment.
How much do I need to invest per month to retire a millionaire? ›
To become a millionaire by age 65, you'd need to save $3,000 each month. For many, this may not be realistic, but try to get as close to this number as you can. If you begin saving five years earlier, at age 45, you'll have a little more flexibility, but your budget will still be tight.
What if I invest $300 a month for 5 years? ›
What if you started working with an investment pro today and found ways to add an extra $300 per month into your retirement accounts? If you did that for just five years, you could add over $368,000 to your nest egg in 30 years.
How much do I need to invest to make $1 million in 5 years? ›
Saving $13,000 would leave you with $3,000 a month to meet all your expenses—a perfectly reasonable number for many singles, and even some couples. Saving and investing $13,000 a month with a 10% annual return would allow you to become a millionaire in just over five years.
What will $10 000 be worth in 30 years? ›
Now let's compare that to keeping money in savings. Today's savings account rates aren't the norm, so let's assume that keeping your $10,000 in cash results in an average annual 2% return over 30 years. In that case, you're growing your $10,000 into about $18,000.
What is the best way to invest $200 a month? ›
The Vanguard Growth ETF is one of many great growth-oriented funds that can deliver market-beating returns. If you can invest $200 per month for 30 years, thanks to the power of compounding, you could end up with a portfolio of more than $1 million.
At what age should you have $1 million in retirement? ›
Retiring at 65 with $1 million is entirely possible. Suppose you need your retirement savings to last for 15 years. Using this figure, your $1 million would provide you with just over $66,000 annually. Should you need it to last a bit longer, say 25 years, you will have $40,000 a year to play with.
How long should $1000000 last in retirement? ›
For example, if you have retirement savings of $1 million, the 4% rule says that you can safely withdraw $40,000 per year during the first year — increasing this number for inflation each subsequent year — without running out of money within the next 30 years. Of course, the 4% rule isn't perfect.
What percentage of retirees have $2 million dollars? ›
According to estimates based on the Federal Reserve Survey of Consumer Finances, a mere 3.2% of retirees have over $1 million in their retirement accounts. The number of those with $2 million or more is even smaller, falling somewhere between this 3.2% and the 0.1% who have $5 million or more saved.
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.
How much is $500 a month invested for 30 years? ›
What happens when you invest $500 a month
| Rate of return | 10 years | 30 years |
|---|
| 4% | $72,000 | $336,500 |
| 6% | $79,000 | $474,300 |
| 8% | $86,900 | $679,700 |
| 10% | $95,600 | $987,000 |
Nov 15, 2023
t = ln(100,000/5,000)/0.097 ≈ 12.35 years Using the formula for continuous compounding interest, it will take approximately 12.35 years for a $5,000 investment to grow to $100,000 at an interest rate of 9.7% compounded continuously.
How to turn 200k into 1 million? ›
How to Turn a $200,000 Investment Into $1 Million
- Evaluate Your Starting Point. Putting together $200,000 to invest is no small feat. ...
- Estimate Your Risk Tolerance. Your risk tolerance will determine what investments you're comfortable making. ...
- Calculate Necessary Returns. ...
- Allocate Investments Wisely. ...
- Minimize Taxes and Fees.
So, what do you need to do to have $1 million after five years? If you have never invested before (you have zero balance in your investment account), you need to invest approximately $12,821 at the end of every month for the next five years.
How much money will I have if I save 100 a month for 10 years? ›
(Enter "$100" in the "Contribution amount" field, then select "Monthly" for the "Contribution frequency" option.) You would end up with $32,023.26 after 10 years, compounded daily (assuming 365 days a year). The interest would be $10,023.26 on total deposits of $22,000.
Is saving $$200 a month good? ›
Saving just $200 a month may not sound like a big deal, but that's $2,400 yearly. This extra money can go a long way toward your other financial goals, like saving money or investing. Also, aiming at a “reachable” goal, like saving $200 a month, could eventually save much more each month once you get the hang of it.
What happens if you save 200 a month for a year? ›
If you don't yet have an emergency fund, it's never too late to start building one. By contributing $200 each month, your fund will add up throughout the year -- $2,400 is a solid amount of cash. Since most checking accounts don't earn interest, keeping your extra funds in a savings account is smart.
What will double my money in 10 years? ›
For instance, to double your money in 10 years, the compound rate of return would have to be 7.2%.
