Here's What Happens When You Invest $500 a Month (2024)

The short answer to what happens if you invest $500 a month is that you'll almost certainly build wealth over time. In fact, if you keep investing that $500 every month for 40 years, you could become a millionaire. More than a millionaire, in fact.

Investing is about buying assets you believe will increase in value. I'll admit, I was nervous about the idea of investing for the longest time. I thought it was best left to the pros on Wall Street, but I was wrong. In fact, there are many ways individuals can invest without setting foot on a trading floor.

That doesn't mean buying or selling individual stocks willy-nilly. Researching and picking stocks does take time and isn't for everybody. But there are investment strategies that don't involve scouring the financial news. For example, you might open a brokerage account and put money into index funds, mutual funds, or ETFs to get access to a mix of assets in one fell swoop.

What happens when you invest $500 a month

Whether we're talking about $500 or $50 a month, the magic of consistent investing is that compound interest works in your favor over time. You're essentially using your gains to generate more money. Depending on the returns you earn, the combination of time and compound interest can be powerful.

The table below shows how different average returns on a $500 a month investment might work out over the decades. It may feel like a lot to take in, but it's a great way to see how your wealth-building might pan out. For me, there are two big takeaways:

  1. When it comes to returns, even a couple of percentage points can make a huge difference to your portfolio over time.
  2. The longer you contribute to your portfolio and let your money work for you, the better.
Rate of return10 years20 years30 years40 years
4%$72,000$178,700$336,500$570,200
6%$79,000$220,700$474,300$928,600
8%$86,900$274,600$679,700$1,554,300
10%$95,600$343,700$987,000$2,655,600

Source: Author's calculations. Approximate values.

This table does not factor in inflation or the fact that we're talking about average returns. Inflation is one of the arch enemies of wealth-building, because it means your money won't go as far. The ideal is that your investments outpace inflation, so you still come out ahead.

How to invest $500 a month

The good news is that returns of 8% or even 10% are achievable for long-term retail investors. Sure, there may be years when your investments perform well and others when your portfolio declines. But over 20 or 30 years, those short-term fluctuations can even themselves out.

Choose the right fund types

You don't have to take big risks to get decent returns. We touched on different types of funds at the start, so here's a quick breakdown:

  • Index funds: Index funds are baskets of stocks that track a specific index, such as the S&P 500. Over the past three decades, the S&P 500 index has generated an annual compound average annual growth rate of over 10%.
  • ETFS or exchange-traded funds: These are very similar to index funds. Many ETFs also track specific indexes, but there are differences in how they are traded and how the taxes work.
  • Mutual funds: As the name suggests, actively managed mutual funds have a fund manager who chooses what stocks to buy.

If you're trying to maximize your returns, pay attention to fees, also known as expense ratios. Bear in mind that mutual funds often charge higher fees to cover the cost of managing the fund. This is only worth it if the fund generates enough returns to cover that cost. In contrast, the annual fees on index funds and ETFs are often very low. For example, several of the best low-cost index funds have expense ratios of 0.02% or 0.03%.

Build a diversified portfolio

In addition to stock market investments, you might also look to add bonds and other assets such as real estate to your portfolio. Bonds tend to generate lower returns than stocks, but are regarded as lower risk. Without getting too technical, if you buy a bond, you're basically lending money to an organization or government and you'll get paid interest on that debt.

The trick is to find the right mix of assets to suit your risk tolerance, and that will almost certainly change with time. You might shift to lower-risk assets as you're nearing retirement, for example. What matters is to start with a plan that suits your circumstances today. A robo-advisor (or real-life financial advisor) might be able to help you get the balance right. Robo-advisors can also regularly review your portfolio and automatically rebalance according to your preferences and even potentially lower your tax bill.

Use tax-advantaged accounts

If you're saving that $500 a month for your retirement, see if you can boost your contributions by reducing your taxes. One common route is a company 401(k) plan. If your company has one and will match your contributions, find out how you can get involved. Not only can you get tax breaks, but the employer match will mean there's more money working for you.

If a 401(k) isn't an option, find out what type of IRA might suit you best. A traditional IRA could mean you lower your tax rate now as you contribute pre-tax income. With a Roth IRA, you'd pay taxes today but you'd be able to withdraw that money -- plus any earnings -- tax free later in life.

Bottom line

Sadly, this is not the place for a crash course in investing. If that's what you're after, check out The Motley Fool's guide on how to invest money. For now, the biggest takeaway is that investing $500 a month can be a fantastic way to build wealth. And the sooner you get started, the better.

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Here's What Happens When You Invest $500 a Month (2024)

FAQs

How much will I make if I invest $500 a month? ›

What happens when you invest $500 a month
Rate of return10 years40 years
4%$72,000$570,200
6%$79,000$928,600
8%$86,900$1,554,300
10%$95,600$2,655,600
Nov 15, 2023

Is $500 a good amount to invest? ›

The potential payoff: $500 invested at a 10% return for 30 years could grow to around $10,000 before inflation, 20 times your initial investment. Even better would be to use this windfall to kickstart an investment-savings habit by opening an account and auto-contributing $10 or $100 more per month.

How much is $500 a month for 20 years? ›

For example, an investor who holds their portfolio for 10 years will put $60,000 into it (10 years of investing x 12 months per year x $500 per month), while an investor who holds the same portfolio for 20 years will contribute $120,000 worth of capital.

What is the average return on $500 000 investment? ›

Average Rate of Return: This is more difficult to calculate because by their nature private equity firms and hedge don't always report their losses and earnings. However, most estimates suggest that you can expect average returns of up to 14%.

How many years it will take you to double your money if you invest $500 at an interest rate of 8% per year? ›

For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.

How to invest $500 dollars for quick return? ›

This could include stocks, bonds or alternative investments, among others.
  1. Investing In Stocks. To get started, you don't have to spend $500 on one stock. ...
  2. Investing In Bonds. ...
  3. High-Yield Savings Account. ...
  4. Certificate of Deposit (CD)
  5. Commission-Free ETFs. ...
  6. Mutual Funds. ...
  7. An IRA or Roth IRA.
Mar 19, 2023

Is $500 a month enough to invest? ›

You can become a millionaire by investing $500 per month consistently for almost 30 years. This is a low-effort strategy, but you can achieve this goal even faster through the right combination of individual stocks. Should you invest $1,000 in Vanguard S&P 500 ETF right now?

What is the best place to invest $500? ›

On this page
  • 7 best ways to invest $500.
  • Invest with a robo-advisor.
  • Contribute to a 401(k) or IRA.
  • DIY with commission-free ETFs.
  • Buy fractional shares of stocks.
  • Buy bonds.
  • Invest In real estate.
  • Pay off debts.

What is the best investment right now? ›

11 best investments right now
  • High-yield savings accounts.
  • Certificates of deposit (CDs)
  • Bonds.
  • Money market funds.
  • Mutual funds.
  • Index Funds.
  • Exchange-traded funds.
  • Stocks.
Mar 19, 2024

How much money do I need to invest to make $4000 a month? ›

Making $4,000 a month based on your investments alone is not a small feat. For example, if you have an investment or combination of investments with a 9.5% yield, you would have to invest $500,000 or more potentially. This is a high amount, but could almost guarantee you a $4,000 monthly dividend income.

How much will I have if I invest $1000 a month? ›

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 will I have if I invest $500 a month for 10 years? ›

If you invested $500 a month for 10 years and earned a 4% rate of return, you'd have $73,625 today. If you invested $500 a month for 10 years and earned a 6% rate of return, you'd have $81,940 today. If you invested $500 a month for 10 years and earned an 8% rate of return, you'd have $91,473 today.

Can I retire at 62 with $400,000 in 401k? ›

If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.

How much money do you need to retire comfortably at age 65? ›

For a 25-year retirement, you'd need just over $2 million in Hawaii — the most of all states by far. That's followed by Massachusetts, California and New York, along with 12 other states where you'd need at least $1 million saved up to retire.

How much money do I need to invest to become a millionaire in 5 years? ›

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.

How much is $500 a month invested for 30 years? ›

How much will $500 a month turn into? At the beginning of this article, I told you investing $500 a month with an average return of 10% per year will result in a portfolio worth $1.14 million after 30 years.

How much money do I need to invest to make $1000 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 do I need to invest to make $5000 a month? ›

To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.

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