How $50 a month when you're 18 can help you retire as millionaire - With Illustration

[wordcrafter]

I quite often see posts by beginners asking if $100 or less is good to begin investing in stocks/etfs. Of course its a good start if you intend to continue to invest for a long long time consistently. So i just went ahead and worked out a yearly returns calculator in Excel with the following parameters.

1. Start Early with $50 a Month
2. Invest in ETFs like the S&P ETF for Steady Returns if you're a novice and would like to take a passive approach to investing
3. Gradually Boost Monthly Contributions by 20% every year until you hit $1000 a month (it will take 17 years to get to this). And once you hit $1000 monthly investment, just keep going. Obviously if you can afford to invest more, by all means do that. And if you can't afford to increment your investment by 20% every year, still do whatever you can. Just keep moving.

Now lets see how this approach will turn out for various scenarios.

1. High Yield Savings Account - 4% Annual Returns
2. S&P ETF with conservative returns - 6% Annual Returns
3. S&P ETF with average returns from past numbers - 8% Annual Returns
4. S&P ETF + Rock solid growth blue chip stocks + Luck - 12% Annual Returns
5. Just Extreme Luck + High Growth Stock - 20% Annual Returns

Simulation of various investment returns on compounding

But please note, this does not take into consideration the taxes and management fees you may have to pay, as well as dividends if any that you may receive. This is just a simple enough calculation to give a preview on what consistency in the market does to your money how much ever little you start with.

And if you need help to sanity check ETFs or Stocks for their fundamentals and also go back in time to see how much returns that particular stock or fund could have give you, do check out the site i've mentioned in the Self promotion thread. It's a site I'm building for beginners and it's free. I plan to include calculators such as this one as well.

Hope this helps.

And PS - Remember the markets are never predictable and things may change at a moment. ETFs can minimize the impact of the fall due the nature of spreading the risk across industries and companies.. And if you need the spreadsheet to test this out with different return percentages, drop me a note.

Edit - Thanks to all for your comments. Since everyone has different perspective of the returns, i've just went ahead and ran the simulations for various annual returns. This kind of gives a perspective on when you would be able to accumulate a million dollars for each of these strategies. I have also updated the returns calculation after prorating the invested amount for every year. Please feel free to let me know if there are any mistakes. Happy to correct.

 

[jab511]

@wordcrafter The glory of compound interest…

 

[wordcrafter]

@jab511 Amen!

 

[luxambou1]

@wordcrafter You’re calculating the gains from the return wrong. In year one, you’re applying the 8% gain to the entire cumulative amount invested for the year. You show a $48 gain which would only be true if the full $600 was invested all year long, but it’s not because you’re only putting in $50/mo. You don’t reach $600 until the last month of the year which means it will not earn the full 8%. (The 8% gains doesn’t all occur on day 365)

You either need to prorate the 8% return at .6667% per month and calc gains monthly , or just time weight the contributions and assume any new dollars only earn 4% for their contribution year (the average monthly balance for year one is $300, half the $600, so use half the return %).

You’re severely overstating the investment gains in your current sheet.