You’ll often hear that if you want to grow a lot of wealth over time, then it’s important to put your money to work by investing it. But actually parting with money to invest is a different story.
You may want to invest a few hundred dollars a month so you can grow yourself a nice little fortune. But finding that few hundred dollars is easier said than done when your car needs maintenance, the rent is due, and you’re out of groceries and need to restock.
It can be especially difficult to find money to invest with when investing is something you’re not used to doing. But the good news is that most brokerage accounts don’t impose a minimum for opening an account, and many allow you to invest on a fractional basis. This means that if you only have $5 to invest with, you can still buy a portion of a share of stock if a full share costs $100 or more.
Now you may be thinking, “Well heck, I’m not going to get very far by investing $5.” And you’re probably right. A single $5 investment is not going to do a whole lot for you.
But what if you were to carve out $5 a day by making small changes — doing things like skipping your morning store-bought coffee or being more frugal at the supermarket? You may be surprised at what an impact that has over a lengthy period of time.
Small investments could go a long way
Over the past 50 years, the stock market has averaged an annual 10% return (before inflation), as measured by the S&P 500’s performance. That doesn’t guarantee that your stock portfolio will deliver that same exact return. Your money might grow at a slower pace, or you might do better than 10%. But given that data, it’s fair to assume that your portfolio has the potential to generate an average yearly 10% return if you’re investing in stocks over a longer period of time.
So, let’s say you’re able to invest $5 a day over a 40-year period. At an average annual 10% return, you’re looking at accumulating about $797,000 — and you’ll have only put in $72,000 of your own money over that 40-year stretch. That could serve as a very nice nest egg for retirement.
But let’s be conservative and say you’ll only score a 7% yearly return in your portfolio over time. In that case, you’d still be looking at around $359,000 — not too shabby. And if your portfolio does better than the market’s average and you score a 12% annual return, you’ll be sitting on $1.38 million.
You don’t need to invest a ton of money to produce great results
They say it takes money to make money, and that’s fair. You can’t invest if you don’t put some money into stocks or other assets.
But it doesn’t necessarily take a lot of money to invest and do well, especially if you have a longer window of time. So if the idea of building a nest egg seems overwhelming to you, break it down to a number you can wrap your head around — $5.
And if you can’t swing $5 a day right now, start with $1 a day, or $2. You can always ramp up as your earnings increase. But the key is to give yourself as much time as possible to invest and build wealth.