If you invest just $100 every month for 50 years at a rate of return of 10%, at the end of the 50 years, you would have only contributed about $60,000. However, over time in the stock market and returns, your total portfolio value will be $1.4 million.
The Simplicity of Index Funds and ETFs
Invest $100 Every Month in Funds and ETFs
Anyway, for most people, investing in an index fund or ETF is all that you really need to do. Basically, instead of investing in one stock that can either go up or down, with an index fund or ETF, you actually invest in hundreds of different stocks. You automatically diversify your money and reduce your overall risk, meaning you can pretty much just set it up and forget it.
Example: S&P 500 Index Fund
For example, if you were to buy an S&P 500 index fund, by buying that one fund, you would own a small percentage of every single stock in the S&P 500. Thus, you track the entire index, which would automatically provide you with diversification because your investment is now spread across the top 500 companies in the US. By buying an index fund, it’s actually a lot cheaper than buying into each of these 500 companies individually on their own.
Index funds are usually a great, safe bet in a retirement account because, based on the average over the course of the past 80 years, index funds have proven to return about 8% a year. Some years are naturally going to be higher than others, but on average, you can expect your money to grow and compound over time.
Example Of an Investment Strategy
Invest $100 Every Month strategy
So with most of my money, I invest in passively managed index funds like FXAIX or VOO because it’s easy and really straightforward. But you can invest in whatever you would like. There are a ton of ETFs and index funds out there, and if the funds that I choose aren’t available in your 401(k), you can just look for another type of index fund that invests in a lot of companies in the US. You should be pretty golden for the most part.
Accepting Financial Realities to Invest $100 Every Month
Which leads me to something that you’ve got to start accepting, and it’s that even if you’re trying your hardest to be better with money, sometimes you might still feel you’re not doing enough. That might be because you don’t know the things you should never waste your money on.