Saving money and investing is no easy task right now. Rising costs make it difficult for many people to find ways to set money aside for their future.
But if you look for small wins and cost savings, they can still lead to a big financial payoff in the end. Whether it's cutting back on trips to the coffee shop, eating out less, or reducing other daily expenditures, saving and investing just $5 per day can potentially be enough to put you on a path to growing your portfolio to $1 million, if you do it over a long enough period like 30 years.
Through the benefits of compounding, I'll show you how you can make the most of any savings you may have with a reliable investment in the stock market.
Growth stocks make for the best long-term investments
If you want to make the most of your money and you're committed to leave it growing in the stock market for many years, then growth stocks are going to be your best options today. Dividend stocks can be excellent sources of passive income, but they're often better suited for investors who need more stability, such as retirees. While growth stocks can be volatile, they're more likely to generate market-beating returns in the long run.
Take the Invesco QQQ Trust (QQQ +1.12%) as an example. This exchange-traded fund (ETF) invests in the top 100 non-financial stocks on the Nasdaq exchange. It has a reasonable expense ratio of 0.2%, not a bad price given the upside it can offer investors through the world's top growth stocks. Whether you want to invest in Microsoft, Nvidia, Tesla, or other leading names, the fund has you covered. And as new growth stocks emerge and become more valuable, the Invesco QQQ Trust regularly rebalances its holdings.
NASDAQ: QQQ
Key Data Points
Over the past 10 years, the fund has generated a total return (which includes dividends) of about 420%, versus just 220% for the S&P 500. That works out to an annualized return of 17.9%.
How $5 per day can grow to $1 million
If you put aside $5 per day, that's approximately $150 per month. And over the course of 30 years, you will have saved around $55,000 total. While that's a good chunk of change, it isn't $1 million or anywhere near it. The key is to invest those savings in a growth-focused ETF like the Invesco QQQ Trust.
Below is a table showing you how your balance could grow over a period of 30 years, assuming you invest $150 each month while earning an average annual return of 15%.
| Year | Balance |
|---|---|
| 5 | $13,500 |
| 10 | $41,800 |
| 15 | $101,500 |
| 20 | $227,400 |
| 25 | $492,600 |
| 30 | $1,051,500 |
Calculations by author. Balances rounded to the nearest hundred dollars.
In the early years, while your portfolio balance is fairly modest, the gains aren't significant. But toward the latter stages, your gains really begin to accumulate.
Your returns aren't guaranteed, but the strategy is a sound one
This level of gains, of course, is by no means guaranteed. Your rate of return will vary from year to year, and you have to reinvest the dividends you receive to maximize your long-term performance.
The Invesco QQQ Trust is also just one popular example of a growth fund you can invest in; there are many great ETFs out there that can help you grow your savings based on your needs and risk tolerance. The core lesson here is to save consistently, even a few dollars a day, and then invest that money to put yourself on the path to a sizable nest egg.
