The stock market can be intimidating at times, but investing is one of the easiest and most effective ways to build long-term wealth. And with stock prices surging right now, it’s a fantastic opportunity to get started.
One of the best parts about investing is that you don’t need to be an expert to generate wealth. You also don’t need thousands of dollars per month to invest. In fact, thanks to this simple investing trick, investing just $200 per month can add up to $395,000 or more. Here’s exactly how to get there.
Using compound growth to your advantage
Albert Einstein once declared compound interest to be the eighth wonder of the world, and for good reason. By taking full advantage of compound growth in the stock market, you can grow your savings exponentially with little effort.
Image source: Getty Images.
With compound growth, you’re earning returns on your entire account balance — not just the amount you invest. The more your balance grows, the more you’ll earn. This will create a snowball effect over time, as your money accumulates faster and faster the longer it has to grow.
One of the best ways to build a significant amount of wealth in the stock market, then, is to get started investing as soon as you possibly can. Whether you have a few years or several decades to save, starting now will make it far easier to maximize your earnings.
Building wealth over time
When it comes to making money in the stock market, every single year counts. The earlier you can begin investing, the less you’ll need to contribute each month.
For example, say you’re investing $200 per month while earning a 10% average annual return on your investments (which is in line with the market’s historic average). At that rate, here’s approximately how much you could accumulate over time:
Number of Years
Total Portfolio Value
10
$38,000
20
$137,000
30
$395,000
40
$1,062,000
Calculations by author via investor.gov.
To accumulate $395,000 in total savings, you’ll need to invest consistently for around 30 years. But if you can continue contributing for even longer than that, you could earn exponentially more.
Also, putting off investing for even a few years can make it much more difficult to reach your financial goals. Say, for example, you have a goal of saving $500,000 in total. If you’re still earning a 10% average annual return, here’s roughly how much you’d need to invest each month depending on how many years you have to save:
Number of Years
Amount Invested per Month
Total Portfolio Value
20
$730
$502,000
25
$425
$502,000
30
$255
$503,000
35
$155
$504,000
40
$95
$505,000
Calculations by author via investor.gov.
Time is perhaps your most important resource when investing in the stock market. While you can earn more by increasing your monthly contributions, if you can get started sooner rather than later, that’s a much easier way to build a substantial amount of wealth.
One important caveat, though, is that it’s important to choose the right investments. Low-cost index funds are often a good choice for beginners, as they require very little effort and are relatively safe and stable. However, they may earn lower returns, on average, than some other types of investments.
If you’re willing to put in more legwork for the chance to earn higher-than-average returns, you may choose to invest in individual stocks. This strategy requires more time and research to ensure you’re choosing quality long-term stocks, but if you invest in the right places, you could earn far more over time.
Regardless of where you choose to invest, getting started now can help maximize your earnings. Compound growth is an incredibly powerful tool, and by taking full advantage of it, you’ll be on your way to building wealth that lasts a lifetime.
