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? ›

For example, if you are able to commit to investing $500 a month in an S&P 500 index fund like the Vanguard 500 Fund (NYSEMKT: VOO), you'll eventually have $1 million, and that includes paying the 0.03% expense ratio in the ETF, meaning you'll pay 3 cents each year for every $100 you have invested in the index fund.

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.

Is $500 a good amount to invest? ›

Money for a long-term goal, such as retirement, should be invested. Time allows your money to grow and bounce back from short-term market fluctuations. The potential payoff: $500 invested at a 10% return for 30 years could grow to around $10,000 before inflation, 20 times your initial investment.

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

Contributing consistently to your brokerage account is a tried-and-tested way to build wealth over time. Investing $500 a month could make you a millionaire in 30 or 40 years. You don't need to be a financial expert, but understanding how to build a balanced portfolio will go a long way.

How much invested to make $500 a month? ›

With a 10% yield and monthly payout schedule, you can get to $500 a month with only $60,000 invested. That is, $6,000 per year paid on a monthly basis. Unfortunately, most stocks don't have yields anywhere near 10%. Many do have high enough yields to get you to $500 a month with diligent savings, but don't pay monthly.

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

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? ›

You can become a millionaire by investing $500 per month consistently for almost 30 years. This is a low-effort strategy, but you can achieve this goal even faster through the right combination of individual stocks.

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 can I invest $500 dollars for a 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 can I make money if I invest $500? ›

How to invest $500 to begin building wealth
  1. 7 best ways to invest $500. It's never too early to start investing for your financial future. ...
  2. Invest with a robo-advisor. ...
  3. Contribute to a 401(k) or IRA. ...
  4. DIY with commission-free ETFs. ...
  5. Buy fractional shares of stocks. ...
  6. Buy bonds. ...
  7. Invest In real estate. ...
  8. Pay off debts.

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 much to invest per month to become a millionaire in 5 years? ›

So, what do you need to do to have $1 million after five years? If you have never invested before (you have zero balance in your investment account), you need to invest approximately $12,821 at the end of every month for the next five years.

Is $500 a month in Roth IRA good? ›

Since you derive the most benefit from tax-free growth by allowing your funds to earn interest over time, contributing $500 monthly to your Roth IRA instead of once a year means you can earn an estimated $40,000 extra over your lifetime.

How can I make $500 a month passive income? ›

You can produce $500 a month in passive income through savings accounts, certificates of deposit, stocks, bonds, funds and other investment vehicles. Each offers varying rates of return, degrees of safety, convenience, and liquidity.

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

A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.

How much will I make if I invest $100 a month? ›

Investing $100 per month, with an average return rate of 10%, will yield $200,000 after 30 years. Due to compound interest, your investment will yield $535,000 after 40 years. These numbers can grow exponentially with an extra $100. If you make a monthly investment of $200, your 30-year yield will be close to $400,000.

How to invest $500 dollars for quick return? ›

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 will I have if I invest $500 a month for 15 years? ›

If you invest $500 a month, the total amount you'll have depends on how long and where you invest it. For example, if you invest for 15 years with a typical 7% annual return, you'd have about $158,481. But remember, the longer you invest and the better the return rate, the more you'll end up with.

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