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If you want to get rich quick, we’ve got some bad news.
Most of us don’t have the time, knowledge, or risk tolerance to multiply our money fast. Even so, experts say trendy and current investments that promise big returns – think Bitcoin or individual stock picking – aren’t actually the best way to make money at all. by investing.
While investing in the stock market is risky, there are some strategies that offer a much better chance of getting a return on your investment, but patience is essential. The easiest and safest way to make your money grow is to invest it in the stock market, make automatic and consistent contributions, and simply wait.
Using SmartAsset’s investment calculator, we estimated what the average investor would need to do to turn $ 100,000 into $ 1 million. Assuming a rate of return of 7% (remember that returns are not guaranteed when you invest) the investor would need to make an initial contribution of $ 100,000 and invest around $ 155 per month for 30 years to finish with $ 1 million.
For a shorter time horizon of 25 years, the investor would have to contribute around $ 530 per month on top of the initial investment to reach $ 1 million. To get there in 20 years, an investor would have to make monthly contributions of about $ 1,150.
So it’s not impossible to start with $ 100,000 and end with $ 1 million, but it’s going to take time and you have to keep saving.
Financial planners recommend putting your money in index funds, a type of passive investing that exposes investors to a wide selection of stocks in order to diversify and ultimately minimize risk. They are inexpensive and consistently outperform actively managed funds. Plus, Warren Buffett is a fan.
Rather than choosing and buying individual stocks, a
allows an investor to own a small portion of each company or asset in the fund. Many index funds follow the S&P 500, which is made up of the 500 largest US companies, including Google, Microsoft, ExxonMobil and General Electric.
An index fund, whether in the form of a mutual fund or an exchange traded fund (ETF), is the ultimate “define and forget” investment. With the S&P 500’s average annual rate of return of 7% after inflation, it’s hard for the average investor to beat the performance of an index fund.
Ultimately, the longer an investment stays in the market, the more time it has to compose – an investment term that refers to an amount of money that snowballs into more money after earning. interest on itself.
One of the best tools to start investing in an index fund is a retirement account such as a 401 (k) or an individual retirement account (IRA). These accounts take automatic contributions from your pre-tax paycheck, so there’s no heavy work on the part of investors. Just make sure you know what you are paying in management and account fees – large plans typically charge around 1% of the investment portfolio, while small plans may charge more than 2%.