It's easy to fall into the trap of thinking that in order to become wealthy in the stock market, you have to have a lot of money to invest.
However, you don't need to be rich to be a successful investor. In fact, you don't even need to know much about how the stock market works to make a lot of money.
By putting your money behind this one type of investment, you can potentially turn a one-time $1,000 investment into $45,000 with no effort on your part.
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Supercharging your investments
One of the most important factors to consider when investing is how to limit your risk while maximizing your returns.
Many investments have the potential to make a lot of money, but they also carry substantial risk. Other investments carry very little risk, but they generate low returns.
S&P 500 index funds are a happy medium. An index fund is a group of stocks bundled together into a single investment, and it tracks a particular stock market index. An S&P 500 index fund, then, is a collection of just over 500 stocks that track the S&P 500.
Since the S&P 500's inception, it has earned an average 10% rate of return per year. But at the same time, it's one of the safest investments out there.
The S&P 500 follows the stock market as a whole. While the market does experience volatility, it's always recovered from all of its downturns. There's no way to avoid volatility entirely when investing, but by investing in S&P 500 index funds, you're almost guaranteed to see positive returns over time.
Another key advantage of S&P 500 index funds is that they're hands-off investments. In other words, they perform best when you leave them alone for as long as possible. This makes them perfect for investors who don't want to worry about choosing stocks or figuring out when to buy or sell investments.
Given enough time, you can easily make a lot of money with this type of investment.
Say you invested $1,000 in S&P 500 index funds right now. If you were earning a 10% annual return and kept your money invested for 40 years, you'd have nearly $45,300 accumulated.
That may be a long time to wait, but keep in mind that this investing approach allows your money to grow with zero effort on your part.
How to earn even more
Of course, not everyone can afford to wait 40 years to save $45,000. But there are other ways to save a substantial amount of money with S&P 500 index funds.
One of the fastest ways to grow your savings is to invest a little each month rather than making a one-time lump-sum investment.
Say, for example, you invest your initial $1,000 right now. But in addition to that, you also invest $200 per month (which comes out to less than $7 per day). Assuming you're still earning a 10% annual rate of return, you'd have around $412,000 saved after only 30 years.
| Number of Years | Total Savings |
|---|---|
| 5 | $16,000 |
| 10 | $41,000 |
| 20 | $144,000 |
| 30 | $412,000 |
| 40 | $1,107,000 |
Data source: author's calculations; assuming a 10% annual return while investing $200 per month
When it comes to investing in S&P 500 index funds, the sky is the limit. The more you're able to invest each month and the longer you keep your money invested, the more you can potentially earn.
It's easier than you may think to get rich in the stock market, even if you can't afford to invest much. By investing in S&P 500 index funds and leaving your investments alone for as long as possible, you can save a substantial amount of money over time.
