Money can be a big obstacle to getting started with investing. If you don't have enough saved up, you may feel discouraged from even starting. But because investing is a long-term process that can span years and even decades, investing gradually over time can still lead to significant returns.
If you can afford to invest on a monthly basis, it's something you should strongly consider doing. Below, I'll show you how investing approximately $440 per month could grow to be worth $1 million after 30 years.
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Investing in a diversified fund can make the process easy
If you're investing regularly each month, the last thing you probably want to do is to make the process complicated. The good news is that rather than sifting through stock news and tracking multiple companies, you can just have one or more exchange-traded funds (ETFs) to put your money into each month.
The Vanguard Total Stock Market Index ETF (VTI +1.16%) is an excellent option for this purpose, as it has minimal fees and broad diversification. At 0.03%, its expense ratio is among the lowest. In exchange for that, you'll get exposure to not only hundreds but thousands of stocks. This can be ideal for investors who want to minimize risk. The largest holding in the fund today is Nvidia, which accounts for 7% of its total portfolio.
Although the fund is diversified, its performance remains comparable to that of the S&P 500. Over the past decade, the ETF has generated total returns (including dividends) of 260%, which is a bit lower than the 279% returns you would have earned by just tracking the S&P 500. On a $10,000 investment, that's a difference of around $2,000. You sacrifice some returns in exchange for safety, and that's typically what you'd expect. However, over the long term, minimizing risk is crucial, especially if you don't want to constantly monitor the stock market.
How investing $440 per month can turn into $1 million
If you're investing $440 each month into the Vanguard Total Stock Market Index ETF or others that give you good exposure to the overall market, you can be in a position to benefit from strong compounded growth over the years. Historically, the S&P 500 has averaged an annual return of around 10%. There will undoubtedly be bad years along the way, but that's what the index has averaged over decades.
Given how closely this Vanguard fund tracks the index, it may not be unreasonable to expect it to continue performing in line with that long-term average in the future. Returns are never a guarantee, but if your investment ends up averaging a 10% gain per year, here's how that $440-per-month investment would grow over time.
| Year | 10% Growth |
|---|---|
| 5 | $34,356 |
| 10 | $90,883 |
| 15 | $183,887 |
| 20 | $336,907 |
| 25 | $588,672 |
| 30 | $1,002,903 |
Table and calculations by author.
Compounding can take time, and within the first decade you still wouldn't be up to a six-figure balance. However, from years 25 to 30, the balance would grow by more than $400,000. This is the big payoff from investing for the long term. Once your balance becomes substantial, the returns start to become massive. Even though the percentage change may remain the same, the dollar amount will be significantly more substantial.
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Investing can take time, but it can also be well worth it in the end
Investing a certain amount of money each month in an ETF, such as the Vanguard Total Stock Market ETF, can be a great long-term move. Even if you can't invest $440 monthly, it may be a good idea to start with something each month to build up that balance over time.
If you wait until the timing is right and you have a large lump sum, you may miss out on possible gains along the way. Additionally, investing every month can help you establish a regular habit, which can also reduce the temptation to try to time the market or obsess over its performance.
The bottom line is that if you stay the course and continue investing regularly (ideally at least a few hundred dollars per month), you're likely to build up a significant balance over the long haul.
