Most people spend $100 per month (or more) for cable TV or streaming services, their cellphone service, gas, coffee to go, or any number of things without thinking about it. Some people even spend money on subscriptions they’ve forgotten they had. I recently realized I was paying way too much for an audiobook service that I hadnʻt used for a year!
While many of these expenses bring great joy to your life, there are some you could certainly cut out. What if, for example, you saved that $5 per day on coffee and a bagel and invested it in something that will likely grow your money, like the stock market?
Letʻs take a look at how you could turn $100 per month into $100,000.
Where should you put your $100?
So your plan is to take that $100 per month you spent on breakfast to go, or from the monthly stimulus payment you may be getting from the federal government, and invest it. If youʻre somewhat new to investing or don’t have a lot of time to spend researching stocks, a good option is an exchange-traded fund, or ETF.
ETFs trade like stocks with their own tickers, but they act like index mutual funds as they track a particular index or benchmark. There are some actively-managed ETFs, too, but the vast majority are passively managed. You could invest in any segment through an ETF, including large-cap stocks, small-cap stocks, a particular sector, or the broad market. Overall, there are more than 7,000 different ETFs worldwide.
Letʻs say you value diversification and stability above all else. A solid choice would be an ETF with a broad mix of stocks that includes a variety of different market caps, sectors, and so on. One of the most popular all-market ETFs is the iShares Core S&P Total US Stock Market ETF (NYSEMKT: ITOT).
This all-market ETF has returned 16.1% over the past 10 years
The iShares Core S&P Total US Stock Market ETF has about $46 billion in assets and has been around since 2004. It tracks the S&P Total Market Index, which tracks the performance of pretty much the entire market, from the largest mega caps like Microsoft and Apple down to the smallest micro-cap companies. It includes 3,688 holdings, or about 90% of the stock market.
This gives you about as broad a fund as you can possibly get, and that diversification of holdings is designed to generate stable returns so that if, say, large caps are struggling, mid caps and small caps may not be — or if growth stocks are down, value names could be up.
This ETF is also about as cheap as you can get with an expense ratio of 0.03%. And returns have been excellent. Since inception, it has had an average annual return of 10.4% as of Oct. 31. Over the past year, it has returned 43.6%, with five- and 10-year annualized returns of 18.9% and 16.1%, respectively.
Turning $100 into $100,000
So, with this stable ETF designed to weather various market cycles, letʻs say you average a 10% return annually over the next 20 years. That would be pretty much in line with its historical performance going back to 2004. Also, the S&P 500 has returned about 10% annually since its inception in 1926.
If you took an initial $100 investment and added $100 per month for 20 years, you would have about $77,000. Now, say you invested $100 per month for 25 years — you would have approximately $134,000. Keep in mind, this hypothetical is based on past performance, which is no guarantee of future results. But it shows how steady, consistent investment, even just $100 per month, can grow exponentially with an average return and the power of compounding.
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Original source: The Motley Fool