Here's What Happens When You Invest $500 a Month (2024)

The short answer to what happens if you invest $500 a month is that you'll almost certainly build wealth over time. In fact, if you keep investing that $500 every month for 40 years, you could become a millionaire. More than a millionaire, in fact.

Investing is about buying assets you believe will increase in value. I'll admit, I was nervous about the idea of investing for the longest time. I thought it was best left to the pros on Wall Street, but I was wrong. In fact, there are many ways individuals can invest without setting foot on a trading floor.

That doesn't mean buying or selling individual stocks willy-nilly. Researching and picking stocks does take time and isn't for everybody. But there are investment strategies that don't involve scouring the financial news. For example, you might open a brokerage account and put money into index funds, mutual funds, or ETFs to get access to a mix of assets in one fell swoop.

What happens when you invest $500 a month

Whether we're talking about $500 or $50 a month, the magic of consistent investing is that compound interest works in your favor over time. You're essentially using your gains to generate more money. Depending on the returns you earn, the combination of time and compound interest can be powerful.

The table below shows how different average returns on a $500 a month investment might work out over the decades. It may feel like a lot to take in, but it's a great way to see how your wealth-building might pan out. For me, there are two big takeaways:

  1. When it comes to returns, even a couple of percentage points can make a huge difference to your portfolio over time.
  2. The longer you contribute to your portfolio and let your money work for you, the better.
Rate of return10 years20 years30 years40 years

Source: Author's calculations. Approximate values.

This table does not factor in inflation or the fact that we're talking about average returns. Inflation is one of the arch enemies of wealth-building, because it means your money won't go as far. The ideal is that your investments outpace inflation, so you still come out ahead.

How to invest $500 a month

The good news is that returns of 8% or even 10% are achievable for long-term retail investors. Sure, there may be years when your investments perform well and others when your portfolio declines. But over 20 or 30 years, those short-term fluctuations can even themselves out.

Choose the right fund types

You don't have to take big risks to get decent returns. We touched on different types of funds at the start, so here's a quick breakdown:

  • Index funds: Index funds are baskets of stocks that track a specific index, such as the S&P 500. Over the past three decades, the S&P 500 index has generated an annual compound average annual growth rate of over 10%.
  • ETFS or exchange-traded funds: These are very similar to index funds. Many ETFs also track specific indexes, but there are differences in how they are traded and how the taxes work.
  • Mutual funds: As the name suggests, actively managed mutual funds have a fund manager who chooses what stocks to buy.

If you're trying to maximize your returns, pay attention to fees, also known as expense ratios. Bear in mind that mutual funds often charge higher fees to cover the cost of managing the fund. This is only worth it if the fund generates enough returns to cover that cost. In contrast, the annual fees on index funds and ETFs are often very low. For example, several of the best low-cost index funds have expense ratios of 0.02% or 0.03%.

Build a diversified portfolio

In addition to stock market investments, you might also look to add bonds and other assets such as real estate to your portfolio. Bonds tend to generate lower returns than stocks, but are regarded as lower risk. Without getting too technical, if you buy a bond, you're basically lending money to an organization or government and you'll get paid interest on that debt.

The trick is to find the right mix of assets to suit your risk tolerance, and that will almost certainly change with time. You might shift to lower-risk assets as you're nearing retirement, for example. What matters is to start with a plan that suits your circ*mstances today. A robo-advisor (or real-life financial advisor) might be able to help you get the balance right. Robo-advisors can also regularly review your portfolio and automatically rebalance according to your preferences and even potentially lower your tax bill.

Use tax-advantaged accounts

If you're saving that $500 a month for your retirement, see if you can boost your contributions by reducing your taxes. One common route is a company 401(k) plan. If your company has one and will match your contributions, find out how you can get involved. Not only can you get tax breaks, but the employer match will mean there's more money working for you.

If a 401(k) isn't an option, find out what type of IRA might suit you best. A traditional IRA could mean you lower your tax rate now as you contribute pre-tax income. With a Roth IRA, you'd pay taxes today but you'd be able to withdraw that money -- plus any earnings -- tax free later in life.

Bottom line

Sadly, this is not the place for a crash course in investing. If that's what you're after, check out The Motley Fool's guide on how to invest money. For now, the biggest takeaway is that investing $500 a month can be a fantastic way to build wealth. And the sooner you get started, the better.

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Here's What Happens When You Invest $500 a Month (2024)


Here's What Happens When You Invest $500 a Month? ›

The short answer to what happens if you invest $500 a month is that you'll almost certainly build wealth over time. In fact, if you keep investing that $500 every month for 40 years, you could become a millionaire. More than a millionaire, in fact. Investing is about buying assets you believe will increase in value.

What happens if you invest $500 a month? ›

Investing $500 monthly would compound itself and eventually earn you about $1 million in just under 29 years. Source: Calculations are based on a $0 initial investment, $500 invested monthly, a 10% average rate of return, and compounding monthly.

How much is $500 a month invested for 30 years? ›

The index fund can turn small contributions into significant sums that generate substantial dividend income. For instance, $500 invested monthly could grow into $915,300 over three decades, and that total could generate $27,000 in annual dividend income. Here's what investors should know.

What is the average return on $500 000 investment? ›

Average Rate of Return: This is more difficult to calculate because by their nature private equity firms and hedge don't always report their losses and earnings. However, most estimates suggest that you can expect average returns of up to 14%.

How much is $500 a month for 20 years? ›

Length of Investment

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.

Is $500 a month enough to invest? ›

Investing $500 per month is a lot for many people. But by reducing your spending in some areas, you'd be surprised at how much you can set aside with a proper budget. With enough time and a proper investment, this simple strategy could even turn $500 per month into $1 million.

How much do I need to invest a month to be a millionaire in 5 years? ›

Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.

How many years it will take you to double your money if you invest $500 at an interest rate of 8% per year? ›

For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.

How to invest $500 dollars for quick return? ›

This could include stocks, bonds or alternative investments, among others.
  1. Investing In Stocks. To get started, you don't have to spend $500 on one stock. ...
  2. Investing In Bonds. ...
  3. High-Yield Savings Account. ...
  4. Certificate of Deposit (CD)
  5. Commission-Free ETFs. ...
  6. Mutual Funds. ...
  7. An IRA or Roth IRA.
Mar 19, 2023

How much do I need to invest a month to become a millionaire in 20 years? ›

This isn't easy, but finding the extra time may be easier than finding an extra $12,000 per year. Given an average 10% rate of return on the S&P 500, you need to save about $1,400 per month in order to save up $1 million over 20 years.

Can I retire at 62 with $400,000 in 401k? ›

If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.

Can I retire on 500k plus Social Security? ›

Key takeaways: Most people in the U.S. retire with less than $1 million. $500,000 is a healthy nest egg to supplement Social Security and other income sources. Assuming a 4% withdrawal rate, $500,000 could provide $20,000/year of inflation-adjusted income.

How much money do I need to invest to get $1000 in return per month? ›

The truth is that most investors won't have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets.

How much will $3000 be worth in 20 years? ›

The table below shows the present value (PV) of $3,000 in 20 years for interest rates from 2% to 30%. As you will see, the future value of $3,000 over 20 years can range from $4,457.84 to $570,148.91.

Is putting 500 into savings good? ›

You should now understand that not only is saving $500 a month good for your savings account, but it builds a healthy emergency fund while it also allows you to create a financially secure plan of retirement contributions. Saving $500 a month isn't easy, but with dedication and some hard work, it's achievable!

What happens if you save $100 dollars a month for 40 years? ›

If you're age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.

Is $500 a good amount to invest? ›

If you have $500 that isn't earmarked for bills, that's enough to get started in investing. It may or may not feel like a fortune to you. But with the right investments, it can certainly be used to start one.

How can I make money if I invest $500? ›

Below are five ways to invest $500—and potentially turn it into much more.
  1. Certificate of Deposit (CD) CDs are considered low-risk investments. ...
  2. 401(k) A 401(k) is a common employee benefit. ...
  3. IRA. ...
  4. Stocks. ...
  5. Cryptocurrency.
Nov 22, 2023

How much money do I need to invest to make $1000 a month? ›

Reinvest Your Payments

The truth is that most investors won't have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets. And that's okay.

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