You can really turn any sum into any other sum if you invest in the stock market. In fact, if you approach investing with little knowledge and knowingly or unknowingly take a big risk, you can turn a sum into a large amount. less sum.
But you’re here and you’re interested in building wealth, so let’s focus on how to do it with stocks. Here’s how you can turn an initial investment of $10,000 into $1,223,459.
Investing in stocks and index funds
For those who are not very familiar with the stock market, it can seem confusing or intimidating, or complicated. Certainly can can be tricky, depending on how you’re investing, but it can also be surprisingly easy, if you stick to index funds.
People are also reading…
An index fund is a mutual fund, or a exchange-traded fund (ETF) — that you don’t need a lot of well-paid financial professionals to keep studying the investment universe, making decisions about what to buy and sell in the fund and when to do it. Instead, an index fund only retains what’s in the index it’s tracking, and offers roughly the same return, minus fees. (Index funds tend to have very low rates compared to more actively managed investments.)
What kind of return you can expect from an index fund, later? Well, it all depends on the index you are tracking. If you track a bond index, for example, you’ll get about the same return as that index (minus fees).
It’s hard to beat the stock ExchangeHowever, for your long-term dollars, those you won’t need for at least five years, if not 10. For many decades, the stock market as a whole has averaged annual returns of about 10%. However, you can’t expect that in your investment time frame; it is likely to average more or less.
everything is math
With that long-term average annual return for the stock market of about 10% on your head now, we can see how you can turn $10,000 into $1,223,459. It’s all just math.
Imagine you took $10,000 and invested it in the stock market and earned an average annual return of 8%. You’d end up with around $1.2 million, eventually. But here’s some bad news: it would take around 63 years! What if the market averaged 10% per year? Well, then, it would only take a little over 50 years. mmm.
Fortunately, you can do better than that: by investing money in the stock market. every year – maybe even every month. (Many people simplify their financial lives by having their employer automatically send a specific portion of their paycheck to a specific account; this is a great way to put a lot of your finances on autopilot.)
The following table shows how much you could accumulate over time if you regularly invested certain sums in the stock market, with an average annual growth of 8%.
Growing at 8% for
$10,000 invested annually
$15,000 invested annually
$20,000 invested annually
See the $1,223,459? You can get there in just 30 years. Invest more each year and you’ll get there even faster: Annual investments of $15,000 can get you there in just over 25 years, and $20,000 a year can get you there in about 22 years.
More risk for more return
Consider, for example, growth stocks. They belong to companies that are growing at a faster than average rate, and while they may be more volatile and risky than the average stock, many also have the potential to appreciate in value at a faster than average rate. If you’re going to invest in individual stocks, which you could do in conjunction with index funds, take a look at our Motley Fool Investment Philosophywhich suggests buying 25 or more shares and trying to hold them for at least five years.
Regardless of how you do it, whether you take the 60-year-old route or a shorter one, it’s worth aiming to build up a sizable nest egg for your retirement years. After all, it may be decades into retirement and you’ll need to be able to support yourself during that time.
10 Stocks We Like Better Than Walmart
When our award-winning team of analysts has investment advice, it’s worth listening to. After all, the newsletter they have published for over a decade, Motley Fool Stock Advisorhas tripled the market.*
They just revealed what they think are the top ten stocks for investors to buy right now…and Walmart wasn’t one of them! That’s right, they think these 10 stocks are even better buys.
Stock Advisor returns as of 02/14/21
The Motley Fool has a disclosure policy.