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 -1.60%).
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
How much is $200 a month for 30 years? ›
If you're investing $200 per month while earning a 10% average annual return, you'd have around $395,000 after 30 years. While that's a long time to invest, keep in mind that this investment requires next to no effort. All the stocks are chosen for you, and you never need to decide when to buy or sell.
How much money will you have if you invest 200 a month? ›
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.
How much do I need to contribute to my 401k to reach 1 million? ›
How Long Will Becoming a 401(k) Millionaire Take? If you invested $23,000 into your 401(k) each year and earned a consistent 8% return each year, you'd achieve a plan balance of $1 million in slightly under 20 years. Note that this does not factor in a potential employer match.
How much money do you need to retire comfortably at age 65? ›
Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that, if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.
What happens if you 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 will $100 a month be worth in 30 years? ›
Investing $100 per month, with an average return rate of 10%, will yield $200,000 after 30 years. Due to compound interest, your investment will yield $535,000 after 40 years. These numbers can grow exponentially with an extra $100. If you make a monthly investment of $200, your 30-year yield will be close to $400,000.
How much do I need to invest monthly to be a millionaire? ›
Assuming that you can earn this 10% average return over your investing career, if you are getting started investing this year and you want to become a millionaire in 30 years, you would need to invest $506.60 per month. This amount may seem like a lot, but it may actually be pretty doable for many people.
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
The truth is that most investors won't have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets.
Here, say that you have $1 million in a 401(k) or IRA, and expect to receive $2,500 per month in Social Security payments, a number right in the mid-range of possible benefits. Can you retire at 65? Well, it certainly depends on your standard of living. But for most people the answer is yes.
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.
At what age should you have 100000 in 401k? ›
“By the time you hit 33 years old, you should have $100,000 saved somewhere,” he said, urging viewers that they can accomplish this goal. “Save 20 percent of your paycheck and let the market grow at 5% to 7% per year,” O'Leary said in the video.
What is the average Social Security check? ›
Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.
How much money do most people retire with? ›
Average retirement savings balance by age
| Age group | Average retirement savings balance amount |
|---|
| 35-44 | $141,520 |
| 45-54 | $313,220 |
| 55-64 | $537,560 |
| 65-74 | $609,230 |
1 more rowMar 5, 2024
If you're age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.
How much money would I have if I saved $100 a month for 40 years? ›
It's a matter of how you're investing
In that case, investing $100 a month over 40 years will leave you with an ending balance of around $531,000. Meanwhile, you'll only be contributing a total of $48,000 to get to that point. So all told, you're looking at a $483,000 gain, which is pretty impressive.
How much is $100 a month for 25 years? ›
How $100 a month can help make you wealthy
| If you invest $100 a month for this many years... | ...this is how much you'll end up with. |
|---|
| 10 | $21,037.40 |
| 15 | $41,939.68 |
| 20 | $75,603.00 |
| 25 | $129,818.12 |
2 more rowsOct 1, 2023
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
