ETFs
Investing at 40? Here’s How Much You Should Invest in This ETF Each Month to End Up With a Million Dollar Portfolio by Retirement
Many people can’t afford to start investing early in life. But that doesn’t mean that if you start later, it’s too late to invest and you won’t be able to build a great retirement fund. Plus, as you progress through your career, your salaries should increase and you’ll have the opportunity to invest more (on a monthly basis) than if you had started years earlier. So you may not be at a huge disadvantage.
Below, I’ll show you how much you would need to invest each month if you’re 40 years old or have 25 years of investing until retirement in order to end up with a portfolio worth at least $1 million.
Investing more money can make up for lost time
When saving and investing for the long term, there are three important variables to consider: time, money, and risk. For example, you can compensate for a lack of time by investing more money and/or taking a little more risk. In an extreme situation where you don’t have many years of investing or much money left to invest, the only lever you can use is risk, which is clearly not ideal when it comes to retirement.
But if you have 25 years of investment left, you still have plenty of time. S&P 500 has reached an average of long-term yield of around 9.7%. If you can generate that kind of return over a 25-year period, an investment could grow up to 10 times its value. That means a $100,000 investment could potentially turn into $1 million with a relatively safe investment that mirrors the market.
The best growth funds can get the most for your money
You can accelerate your returns by investing in a potentially market-beating investment, such as Invesco QQQ Trust (NASDAQ: QQQ). The exchange-traded fund (ETF) gives you exposure to the Nasdaq-100 index, which includes the largest non-financial stocks on the stock market. Its top holdings include big names such as Apple, Microsoft, Nvidiaand other stocks that will be familiar to tech investors.
Over 10 years, the fund has generated a total return (including dividends) of 473%, which averages out to a compound annual growth rate of 19%. But to be conservative, let’s assume that the average return will be lower, but slightly higher, than the S&P 500.
Here’s a breakdown of how much you would need to invest per month at different growth rates, assuming you have 25 years left until retirement:
|
ten% |
$753.67 |
|
11% |
$634.46 |
|
12% |
$532.24 |
|
13% |
$445.02 |
|
14% |
$370.94 |
|
15% |
$308.31 |
Author’s calculations.
As you can see, it makes a lot of sense to aim for a fund that can beat the market rather than simply replicate the index. While the S&P 500 can offer some stability and safety, by taking a little more risk and investing in a technology-heavy fund like the Invesco ETF, you may need lower monthly payments.
The story continues
Returns are of course never guaranteed, but by focusing on cutting-edge technology and growth values on the Nasdaq, it’s a reasonable risk to take – and the benefits to your portfolio can be significant.
Investing is never a bad idea, no matter your age
Your investing strategy may change over time, but there are plenty of stocks and ETFs to invest in, which can give you plenty of options to choose from. If you started early, you can take a little more risk and focus on growth stocks and tech. If you’re closer to retirement, safe, blue-chip stocks that pay dividends may make a lot more sense.
But the key is to try to save and invest money regularly. Even in retirement, stocks can be valuable sources of recurring dividend income.
It is possible that an investment will turn out to be more profitable than expected, which is why it is generally wise to invest in quality stocks. Even if the markets are not always rosy, in the long run, quality investments will appreciate in value.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a position in the stocks mentioned and recommends shares of Apple, Microsoft, and Nvidia. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. disclosure policy.
Investing at 40? Here’s How Much You Should Invest in This ETF Each Month to End Up With a Million Dollar Portfolio by Retirement was originally published by The Motley Fool