The stock market can be intimidating at times, especially during periods of volatility. But it’s also a powerful wealth-generating machine.
Investing is one of the easiest, most effective ways to build long-term wealth, and you don’t need a lot of money to get started. Even if you’re starting with as little as $1,000, you can grow a portfolio worth more than $500,000 over time. Here’s how.
Investing in the right places
You don’t need to know a lot about the stock market to get started investing. In fact, with some investments, you don’t need to know anything about researching companies or choosing stocks.
For many people, an S&P 500 index fund is a great place to get started. This type of investment tracks the S&P 500 index itself, which means it includes the same stocks as the index and mirrors its performance over time.
S&P 500 index funds require very little effort on your part, because you never need to worry about choosing individual stocks or deciding when to buy or sell. All you have to do is invest consistently, and the fund will do the rest of the work for you.
This type of investment is also a safe choice during periods of volatility. The S&P 500 itself has faced countless market downturns over the decades, and it’s managed to recover from all of them. No matter how long this current slump continues, it’s extremely likely the S&P 500 will recover eventually — and so will your investment.
How much can you earn with an S&P 500 index fund?
Perhaps the best part about an S&P 500 index fund is that although it’s one of the safest investments out there, it also packs a punch.
Historically, the index itself has earned an average rate of return of around 10% per year. This means that while you likely won’t earn 10% returns year after year, the highs and lows over time will average out to around 10% per year.
Say, for example, you were to invest $1,000 right now in an S&P 500 index fund. If you made no additional contributions and were earning a 10% average annual return, you’d have around $28,000 after 35 years.
The real magic happens when you start investing consistently. Say that along with your initial $1,000 investment, you also contribute $100 per month. Assuming you’re still earning a 10% average annual return, here’s approximately how much you’d accumulate over time:
Number of Years
The sky’s the limit in terms of how much you can earn with the stock market. The more you’re able to invest each month and the longer you let your money grow, the more you can earn.
Is it safe to invest right now?
The market is shaky right now, which can be daunting. However, market downturns can actually be one of the best opportunities to invest because prices are lower.
Even if you’re buying S&P 500 index funds rather than individual stocks, you’ll still pay less for your investments when stock prices are down. When the market inevitably recovers, you could see substantial gains. If you’re looking for a good time to start investing, downturns can be your best chance.
That said, it’s important to keep a long-term outlook when investing. There is a chance that the market will get worse before it gets better, and your investments could lose value in the short term. That’s normal. Try your best to stay focused on the future, and remember that no matter how far stock prices fall, the market will recover eventually.
Investing in the stock market can create life-changing wealth, but it’s important to have a strategy. By investing in the right places, contributing consistently, and keeping a long-term outlook, you could build a portfolio worth hundreds of thousands of dollars or more.
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