Investing is one of the fastest ways to grow your wealth, and it’s virtually essential for retirement savings. But for most people, it’s not like the lottery where you put in a few dollars and wake up a multimillionaire the next day. It takes time to turn your contributions into a fortune.
Below, we’ll take a look at how investing works and how long it can take to turn $ 100 per month into $ 1 million or more.
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How to invest earns you money
When you invest in a stock, you are betting on the future success of a business. You buy a small stake in the business, which you can keep for as long as you want. If that company performs well over time, its share price will rise.
When you sell, you are exchanging your stake in the company for the current value of your shares. The difference between the stock price at the time of sale and the original stock price at the time of purchase is called your profit.
For example, if you bought a stock worth $ 100 and sold it a year later for $ 200, your earnings would be the difference of $ 100 between your original purchase price and your price. of sale.
Making a fortune on the stock market therefore means choosing companies with a promising future and keeping them, often for decades, to maximize your earnings.
Growth of $ 100 per week into $ 1 million
Certain factors influence the value of your investments, including:
- How much you invest
- What you invest in
- How long do you hold your investments before you sell
If you invested $ 100 per week and your investments generated an average annual rate of return of 7%, it would take a little over 39 years to reach $ 1 million. But changing any of the three factors above could drastically change the timeline.
Increasing your contributions to $ 200 per week would save you $ 1 million over less than 30 years, all other factors being the same. And if your weekly contributions of $ 100 instead generated an average annual rate of return of 10%, it would take less than 32 years to reach $ 1 million.
If you’re hoping to save over a million dollars, holding on to your investments longer is an easy way to do it. Going back to our original example of $ 100 per week with an average annual rate of return of 7%, it would take a little over 39 years to reach $ 1 million, but it would only take a decade longer to reach 2 millions of dollars.
What does this mean to you?
The above examples are just what-if scenarios, but they can teach you important things about how to grow your wealth quickly by investing. Contributing as much as possible by starting as early as possible will help you maximize your income. Increasing your contributions whenever possible will also help.
Make sure you invest in solid companies that you think will still be profitable decades from now, and spread your money among many different stocks and bonds to make sure none are too heavy on your portfolio.
If you follow these tips, you can potentially hit $ 1 million, but don’t stop there. Calculate how much you actually need for your retirement and make it your goal. Don’t forget about inflation and taxes. Over time, $ 1 million won’t go as far as it does today, so you might need more than you think for retirement.
You can make it easier for yourself by saving in a tax-efficient retirement account, such as a 401 (k) or IRA. These accounts won’t save you from paying taxes entirely, but they can reduce the amount you owe, allowing you to keep more of your savings.
It will still take time to build up a substantial nest egg by investing, but you will get there much faster than with a savings account. If you make investing a priority and follow the tips above, you should start to see progress towards your goal faster than you think.
