Whether you’re investing $50 or $500 per month, it can be a great idea to regularly invest in the market if you’re looking for long-term growth for retirement. For most households, regular, fixed investments are one of the best ways to build wealth over time. They allow you to budget effectively, as opposed to setting aside large amounts of money each year or hoping to make big catch-up contributions when you’re older, while also letting your money grow over time. What you can make from investing $500 varies based on many factors, including what you invest in. You might want to consider working with a financial advisor who can help you maximize returns for your personal situation.
Factors to Consider When Investing
When it comes to investment, there are several different factors that determine your returns. Up front, there’s the question of capital, meaning how much money you will invest. In this case, we will assume that to be $500 per month. Beyond that, the two most important issues to consider are:
1. Length of Investment
How long will you be holding these investments? The length of time you invest will determine how long your money has to grow. In the case of regular, structured investments it will also determine how much capital you ultimately put in. 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.
2. Chosen Assets
The assets you choose will determine how your portfolio performs. This is based on several factors, most importantly your tolerance for risk and your investing goals.
For example, a short-term investor may be simply holding money for a few years while they save up to buy a home. This person will generally want liquid investments with relatively little chance of volatility; they don’t have much time for things to go wrong. However, an investor saving for retirement may have decades ahead of them. They can take riskier positions because they have more time for their portfolio to recover from downturns.
The answers to these questions range widely, so let’s look at a few examples in order to find a general expectation for what you can earn if you’re investing $500. We are going to look at the two most popular ways that many investors consider investing lower amounts of money.
How Much Can $500 in the Stock Market Earn You?
One of the most popular investments is the stock market, which has traditionally grown through every generation, even with downturns in the market from time to time. Here is what you can expect when investing $500 regularly in the stock market, based on history:
Average Return: 10%
Total Return Over 10 Years: $101,229
Total Principal: $60,000
Total Growth: $41,229
Total Return Over 20 Years: $362,493
Total Principal: $120,000
Total Growth: $242,493
There are two things to keep in mind when investing in the market. First, whenever possible you should be a long-term investor. Think about your portfolio in terms of years, not months, and hold assets rather than actively trading them. Second, if you are a long-term investor, focus on the S&P 500. Over the long term, no mainstream asset class consistently outperforms the market as a whole, nor do actively managed portfolios.
Over time, the average return for the S&P 500 is about 10% per year. This means that if you put $100 per year into your portfolio, on average you will end the year with $110 in value. This exceeds other mainstream asset classes such as bonds, which return an average of 6.1%, and funds, which return an average of 8% per year. Although it’s important to note that data on mutual funds is soft since this is a largely self-reported market.
These are returns that apply to long-term investments though. When measured in months, or even across a single year, the stock market is still a very volatile place. At the time of writing the market had fallen by more than 400 points over the previous few weeks, and in fact had ranged within a window of more than 1,000 points over the past year.
This makes it a very difficult short-term investment. While all of those declining portfolios right now can make their money back, it will take a process of months or years. For investors with those years to wait, this is usually no problem. For investors who need their money sooner, this volatility can be an issue.
This makes investing in a pure S&P 500 index fund often a strong strategy for investors with years to wait. If you have time to let your money grow, this can be an excellent way to build wealth over time. If you have 10 or 20 years, you can turn that $500 per month into hundreds of thousands of dollars.
How Much Can $500 In Bonds Earn You?
You can buy secured bonds in the open market or from the U.S. government and these investments typically return less than the market but are considered safer. Here is what you can generally expect to earn from bond investments:
Average Return: 6.1%
Total Return Over 10 Years: $82,559
Total Principal: $60,000
Total Growth: $22,559
Total Return Over 20 Years: $230,906
Total Principal: $120,000
Total Growth: $110,906
Bonds are almost the opposite end of the spectrum from stocks. Investment-grade bonds, generally meaning either government debt or corporate debt rated Baa or above, very rarely default. Historically speaking investors who buy good bonds almost always get their interest payments and their money back at the end. This makes bonds a great choice for security-conscious investors. If you’re worried about risk, bonds address that concern. If you’re worried about liquidity, the security of a bond repayment makes them a very salable instrument.
The tradeoff for this security? You collect quite a bit less on your investment over time. A bond is useful because it pays you its coupon rate, the interest on the note, generally in either quarterly or monthly installments. This gives you a steady stream of income, as opposed to stocks that you have to either sell and reinvest or simply hold over a long period of time. But you make less of a bond’s interest payment than the average return on the stock market. The market is at higher risk and more volatile, so it has to offer higher returns.
The upshot is that bond-heavy investing is often good for investors with shorter windows. Maybe you’re coming up on your retirement, or maybe you only want to hold this portfolio for a few years while you save up for a big purchase. Regardless, if you won’t have the years it might take to let your portfolio recover from market losses, bonds can be a good alternative. They offer much higher returns than a simple savings account, which tend to pay below 1% annualized interest on average, while also giving you a strong measure of stability.
The Bottom Line
Making fixed, regular contributions can be one of the best ways to build over time, whether you’re saving up for retirement or just a big trip. For investors with time to ride out the volatility, a stock-heavy approach focused on S&P 500 index funds will give you strong growth. For those who need more security, bonds can give you much higher returns than simple savings accounts while also mitigating many of the market’s risks.
Tips on Investing
- If you’re looking at making regular contributions to your portfolio, you’re already making good choices, but you might want to consider professional help when it comes to asset allocation. A financial advisor can create a portfolio that matches your personal goals and help you maintain them. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- How much will your investment strategy net you? Whether you have $500 per month or even just $15, any amount of money will add up over time and SmartAsset’s investment calculator can tell you exactly what that will look like.
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