While no one can predict the future of the stock market, we can use historical data and the power of compound interest to show you how much you could potentially make by investing $100 a month. This strategy, known as dollar-cost averaging, is one of the most effective ways for average people to build wealth over time.
Based on historical data from the U.S. stock market (specifically the S&P 500), the average annual return has been about 10% over the long term. Using this rate, here’s an estimate of what your monthly $100 investment could grow to.
The Power of Compound Interest: Your Money’s Snowball Effect
To truly understand how much you’ll make, you have to grasp the concept of compound interest. It’s often called “the eighth wonder of the world” because it allows your money to grow exponentially. Here’s how it works:
- You invest $100.
- Your $100 earns interest.
- The interest you earned is then added to your $100.
- In the next period, you earn interest on your original $100 and the interest you just earned.
This “interest on interest” effect is what makes consistent, long-term investing so powerful. The more time you give your money to compound, the faster it grows.
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Your $100 a Month Investment: The Numbers
Let’s use a simple calculator to show the potential of a $100 monthly investment, assuming a 10% average annual return and that you start with no money.
- After 10 years: You’ll have invested $12,000 of your own money, but your total value could be around $20,484.
- After 20 years: You’ll have invested $24,000, but your total could grow to roughly $76,570.
- After 30 years: You’ll have invested $36,000, and your money could be worth over $226,048.
- After 40 years: You’ll have invested $48,000, but your portfolio could skyrocket to approximately $652,042.
As you can see, the real growth happens in the later years. Your interest earnings eventually begin to outpace your monthly contributions, turning your investment into a financial snowball that grows bigger and faster with every passing year.
Why This Strategy Works: The Benefits of Dollar-Cost Averaging
Investing a fixed amount of money regularly, like your $100 a month, is a strategy known as dollar-cost averaging. This simple but effective approach removes emotion from investing and helps you build wealth consistently, regardless of what the market is doing.
- You buy more when prices are low: When the market dips and stock prices fall, your fixed $100 buys more shares.
- You buy less when prices are high: When the market is booming, your $100 buys fewer shares.
- It averages your buying price: Over time, your average cost per share is likely to be lower than if you tried to time the market by investing a large lump sum.
This strategy protects you from making the common mistake of buying high and selling low. By staying disciplined and consistent, you take advantage of market volatility instead of being hurt by it.
Important Things to Remember
While the numbers above are exciting, it’s important to keep a few things in mind:
- Past performance is not a guarantee of future returns. The 10% average is a historical figure, and the stock market will have good years and bad years.
- Inflation eats into your returns. The 10% average return doesn’t account for inflation. The actual buying power of your money will be less than the face value. Historically, the real return on stocks after adjusting for inflation has been closer to 6-7%.
- Taxes and fees matter. You will have to pay taxes on your investment gains, and your brokerage may charge fees. These costs will slightly reduce your total return.
- The biggest risk is not starting. The one thing that is certain is that the money you keep in a regular savings account will lose buying power over time due to inflation. By consistently investing, you’re giving your money a fighting chance to grow.
Getting Started with Your $100 a Month Investment
Making your first investment is easier than ever. You don’t need a lot of money or a financial degree to begin. You can start by investing in low-cost index funds or ETFs that track the S&P 500. These funds allow you to own a tiny piece of hundreds of the biggest companies in the U.S., like Apple and Microsoft, all with a single investment. This is an easy way to get instant diversification and follow the market’s overall growth.