When it comes to investing, often times the million-dollar question everyone wants the answer to is, how much do I need to invest to become a millionaire?
Whether people like it or not, the short answer is, it depends.
And while there is so much advice out there when it comes to building wealth, one of the most important suggestions that is often repeated (for good reason) is to start investing as early as you can. Young people may just be beginning to divvy up their entry-level salaries among rent, student loan debt, an emergency fund and their social life, but they should also avoid putting investing on the back burner.
CNBC Select asked Brian Stivers, a financial advisor and founder of Stivers Financial Services, to help us calculate exactly how much money 25-year-olds should invest each month to become a millionaire.
"When it comes to investing, there are three very important components: the amount you contribute monthly, your rate of return and how long you have to save," Stivers explains.
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When crunching the numbers, Stivers accounted for three different return rates and used a retirement age of 65, which would give 25-year-olds 40 years to reach $1 million. Here's what we found:
- A 25-year-old making investments that yield a 3% yearly return would have to invest $1100 per month for 40 years to reach $1 million
- If they instead make investments that give a 6% yearly return, they would have to invest $530 per month for 40 years to reach $1 million
- But if they choose more aggressive investments that yield a 9% yearly return, they would only need to invest $240 per month for 40 years to reach $1 million
As we can see, a higher return can allow you to invest less money each month and still achieve the same goal. A 3% return is common for a more conservative portfolio of mostly bonds, whereas a 6% return is a bit more moderate and usually consists of a combination of stocks and bonds. However, a 9% return is on the more aggressive end and can usually be received through a portfolio that's stock heavy.
Keep in mind that when investing in stocks, you shouldn't just be throwing your money at random individual stocks. A tried-and-true strategy is to invest in index funds or ETFs that track the stock market as a whole, like the . According toInvestopedia, the S&P 500 has historically returned an average of 10% to 11% annually, so you might expect a fund tracking this index to produce similar returns. Note that past returns do not indicate future success.
Of course, a portfolio of mostly stocks is generally seen as more risky, but 25-year-olds are often said to have a larger risk tolerance since they have more time to weather market dips and recover after losses. But if you aren't sure how to create a portfolio that adequately reflects your risk capacity, robo-advisors like Wealthfront and Betterment can pick portfolios that best match your preferences.
Wealthfront
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. $500 minimum deposit for investment accounts
Fees
Fees may vary depending on the investment vehicle selected. Zero account, transfer, trading or commission fees (fund ratios may apply). Wealthfront annual management advisory fee is 0.25% of your account balance
Bonus
None
Investment vehicles
Investment options
Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources and dividend stocks
Educational resources
Offers free financial planning for college planning, retirement and homebuying
Terms apply.
Betterment
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.
Fees
Fees may vary depending on the investment vehicle selected, account balances, etc. Click here for details.
Investment vehicles
Robo-advisor: Betterment Digital Investing IRA: Betterment Traditional, Roth and SEP IRAs 401(k): Betterment 401(k) for employers
Investment options
Stocks, bonds, ETFs and cash
Educational resources
Betterment offers retirement and other education materials
Terms apply. Does not apply to crypto asset portfolios.
If you want to directly purchase individual stocks, index funds and/or ETFs, then you'll want to open a fee-free brokerage account, such as Schwab or Fidelity.
Charles Schwab
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One®Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
Fees
Fees may vary depending on the investment vehicle selected. Schwab One®Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Bonus
None
Investment vehicles
Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One®Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
Investment options
Stocks, bonds, mutual funds, CDs and ETFs
Educational resources
Extensive retirement planning tools
Terms apply.
Fidelity Investments
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go®account, but minimum $10 balance according to the investment strategy chosen
Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go® has no advisory fees for balances under $25,000 (0.35% per year for balances of $25,000 and over and this includes access to unlimited 1-on-1 coaching calls from a Fidelity advisor)
Bonus
Find special offers here
Investment vehicles
Robo-advisor: Fidelity Go® IRA: Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other:Fidelity Investments 529 College Savings; Fidelity HSA®
Investment options
Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares
Educational resources
Extensive tools and industry-leading, in-depth research from 20-plus independent providers
Terms apply.
The other important element of investing is time. Thanks to compound interest, individuals in their 20's who want to retire in their 60's can invest less money each month compared to someone who starts investing in their 30's. But, according to a Business Insider and Insider Intelligence survey, 48% of millennials aren't investing because they don't think they earn enough money to do so.
There has long been a notion that you needed to already be rich in order to start investing. However, many investing apps allow users to invest in fractional shares — aka a portion of a stock's share based on the amount of money you want to invest rather than the number of shares you want to purchase — with as little as $1. And, apps like Acorns even allow users to invest the "spare change" they accrue from making everyday purchases like coffee, textbooks and clothing.
Acorns
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum required to open an account, $5 minimum to start investing
Fees
Fees may vary depending on the investment vehicle selected. Monthly plans include: Acorn Personal ($3 per month), Acorn Personal Plus ($5 per month), and Acorn Premium ($9 per month)
Bonus
None
Investment vehicles
Robo-advisor: Acorns Invest IRA: Acorns Later includes Traditional, Roth, SEP IRAs, 401(k) Rollover Investment accounts for kids: Acorns Early
Investment options
Diversified ETFs which include more than 7,000 stocks & bonds
Educational resources
"Money Basics" blog and Grow + CNBC website
Terms apply.
But a rising cost of living and crippling student loan debt balances may also present challenges when it comes to feeling like you have enough money to cover your basic expenses and still invest for your future. As a result, 25-year-olds (and other people in their 20's and 30's) may feel like they don't even know how to free up some money to invest.
"I would start by encouraging them to look at three months' worth of their debit or credit card statements and create a list of where they're spending their money," Stivers suggests. Understanding where your money goes can help you identify any unnecessary expenses that have been eating up your income. Then, you can cut back on those things and free up more of your money to put toward investing and expenses you actually care about.
And of course, when it comes to investing, one of the most impactful things you can do is to just start — even if you only begin by contributing a small amount of money. "I tell clients if you aren't investing now, just start somewhere," Stivers says. "If you can't contribute $30 per week, maybe you can just invest $10 per week. Just getting into the habit of investing small amounts can help."
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Disclosure: NBCUniversal and Comcast Ventures are investors inAcorns.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.