A good way to build up your portfolio over the years is to invest on a regular basis. If you don't have thousands of dollars to invest in the stock market today, that shouldn't discourage you from investing. Thanks to the power of compounding, even investing a few hundred dollars each month can put you on a path to creating a portfolio worth several hundred thousand dollars in the future, potentially even more than $1 million.
Below, I'll go over how much your portfolio might one day be worth if you invest $250 per month. That equates to $3,000 per year, which may not seem like a whole lot. But if you were to keep up that habit for years, you may be surprised just how significant your portfolio may end up becoming over time. And there's no need for any complex strategies, either. Simply tracking the S&P 500 index can be a safe and reliable way to grow your portfolio over the long haul.
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Why tracking the S&P 500 is an ideal option for most investors
The S&P 500 index is a collection of the best 500 companies with stock trading on the U.S. markets. It includes stocks from all major sectors, and it's what analysts and investors often look to when gauging the strength of the overall market. And that's why, by tracking the index, you can effectively give yourself a way to benefit from the stock market's long-term growth.
There will be occasional bear markets and years when the index trades negatively, but historically, the S&P 500 has risen by an average of 10% per year. And while fund managers always try to outperform it, the reality is that most will end up failing to do so. And if you can't beat it, you may as well try to simply mirror it, which you can do through many exchange-traded funds (ETFs).
One ETF that charges low fees and gives you exposure to the broad index is the SPDR S&P 500 ETF (SPY +0.80%). It has an expense ratio of just 0.0945% (i.e., for every $10,000 invested, the fund charges $9.45 in annual fees), and it's a great example of a fund that you can safely invest in on an ongoing basis.
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Key Data Points
How much could your portfolio be worth over the long term?
If you invest $250 monthly into the SPDR S&P 500 ETF, you can be confident that your investment will grow significantly over the long term. The big question mark, however, is how quickly it will grow. While the S&P has averaged 10% gains for decades, that doesn't mean it's a sure thing to produce a 10% return every year.
In fact, the last time it actually produced a return close to 10% was in 2016, when it rose by 9.5%. In four of the past six years, the index achieved gains in excess of 20%. While that's great news if you were invested in the market during that stretch, it also suggests that the index may be due for a period of cooling down, and that future returns may be lower.
The table below shows you how a $250-per-month investment in the SPDR ETF might grow over the long term, at varying average rates between 8% and 10%, thanks to compounding. This can give you an idea of how it might do under average conditions, and also if it does end up underperforming.
| Year | 8% Growth Rate | 9% Growth Rate | 10% Growth Rate |
|---|---|---|---|
| 10 | $46,041 | $48,741 | $51,638 |
| 15 | $87,086 | $95,311 | $104,481 |
| 20 | $148,237 | $168,224 | $191,424 |
| 25 | $239,342 | $282,383 | $334,473 |
| 30 | $375,074 | $461,119 | $569,831 |
| 35 | $577,294 | $740,962 | $957,069 |
Calculations and table by author.
There's no crystal ball to tell you what kind of return you'll end up generating in the long run. But as you can see, by regularly investing $250 per month, you could still end up with a portfolio worth more than $500,000 after 35 years, even if you end up averaging an annual return of around 8%. Hopefully, the average return ends up being a bit higher than that, but by being conservative in your assumptions, you can avoid basing forecasts and projections on ideal circumstances and best-case scenarios.
But regardless of what the actual average rate ends up being, it's clear that by keeping up a habit of investing $250 per month, you can put yourself in a much stronger financial position in the long run.
