Investing for your financial goals is much like the story of the tortoise and the hare. The tortoise is slow but determined to take step after step to ultimately achieve his goal. The hare is fast and snickers at the tortoise’s speed. The hare is so confident he’ll win the race that he takes a nap. Eventually, the tortoise wins.
Slow and steady wins the race.
Don’t underestimate your regular savings. Saving even just $10 a week amounts to $520 a year. If you’re able to save and invest, say, $500 a month, boy, will that make a huge impact on your financial life!
Invest $500 a month for 15 years and get to $250,000
Saving $500 per month equates to $6,000 a year and $90,000 in 15 years. Investing your savings in the stock market will grow that little fortune into big fortune.
Normally, investors can get long-term market returns of about 7% from the TSX index. However, because the market crashed and is still relatively low, investments today can deliver even higher returns!
Here are some stocks that you should highly consider. It’s well within reason to expect the stocks of Alimentation Couche-Tard (TSX:ATD.B) and Open Text (TSX:OTEX)(NASDAQ:OTEX) to deliver annualized total returns of 10-15% (if not greater) over the next five years.
Both companies use an M&A strategy as a key pillar for growth and have done so with tremendous success. They generate substantial free cash flow. Therefore, they can make fitting acquisitions as they see fit.
Since 2012, well after the last economic downturn, so there’s no bias, Couche-Tard stock has delivered returns of more than 27% per year, while it was 19% for Open Text. Both returns greatly beat the North American market returns.
Assuming you invest $6,000 each year in the stocks and get returns of 12% per year, you’d end up with $250,519 in 15 years! That’d be $160,519 on top of the $90,000 you contributed over the years.
Invest $500 a month in high-yield dividend stocks
Couche-Tard and Open Text pay dividends, but their yields are tiny at 0.7% and 1.8%, respectively. Investors can also aim for 12% returns from higher-yielding dividend stocks thanks to the market crash.
For instance, BNS stock offers a 6.8% yield at writing. The big bank’s payout ratio is about 52%, and its earnings are very stable. So, it’s highly likely that it’ll maintain or increase its dividend through this economic downturn.
Moreover, at about $53 per share at writing, BNS stock trades at a substantial discount of roughly 35% from where it can normally trade. Assuming long-term growth of about 5%, the bank stock can actually deliver returns of 13-15% over the next five years.
The Foolish takeaway
Investors can complement their high-growth stocks with high-yield stocks. The market crash that we’re in provides long-term investment opportunities in both types of investments.
By saving and investing regularly in proven growth stocks like Couche-Tard and Open Text, and safe dividend stocks like BNS stock, investors are setting themselves up for vast wealth down the road.
By investing $500 a month (i.e., $6,000) a year and getting 12% annualized returns, you’ll arrive at $250,519 in 15 years. In the current bear market, investors should push to put down more than $500 a month in their retirement fund, because there’s a greater chance of even higher returns.
Remember to invest in quality businesses!
The post Invest $500 a Month for 15 Years and Get $250,000 appeared first on The Motley Fool Canada.
Fool contributor Kay Ng owns shares of ALIMENTATION COUCHE-TARD INC, Open Text, and The Bank of Nova Scotia. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC, BANK OF NOVA SCOTIA, Open Text, and OPEN TEXT CORP.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020
By investing $500 a month (i.e., $6,000) a year and getting 12% annualized returns, you'll arrive at $250,519 in 15 years. In the current bear market, investors should push to put down more than $500 a month in their retirement fund, because there's a greater chance of even higher returns.
If you invest $500 a month, the total amount you'll have depends on how long and where you invest it. For example, if you invest for 15 years with a typical 7% annual return, you'd have about $158,481. But remember, the longer you invest and the better the return rate, the more you'll end up with.
The short answer to what happens if you invest $500 a month is that you'll almost certainly build wealth over time. In fact, if you keep investing that $500 every month for 40 years, you could become a millionaire. More than a millionaire, in fact. Investing is about buying assets you believe will increase in value.
But in order to be a millionaire via investing in 15 years, you'd only have to invest $43,000 per year (assuming a 6% real rate of return, which accounts for inflation). I know, I know – only $43,000 per year. No big deal. *From this point forward, the average real rate of return we'll be assuming is 6%.
A quick and easier way to estimate the time it takes to double your money with compound interest is the Rule of 72. Simply divide 72 by your annual interest rate. In the case of an 8% yield, it would take approximately nine years to double your money (72 / 8 = 9).
Now, let's consider how our calculations change if the time horizon is 10 years. If you are starting from scratch, you will need to invest about $4,757 at the end of every month for 10 years. Suppose you already have $100,000. Then you will only need $3,390 at the end of every month to become a millionaire in 10 years.
Investing $500 per month is a lot for many people. But by reducing your spending in some areas, you'd be surprised at how much you can set aside with a proper budget. With enough time and a proper investment, this simple strategy could even turn $500 per month into $1 million.
Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.
Investing $1,000 per month for 30 years at a 6% rate of return hypothetically will give you an investment portfolio worth more than $1 million. This result is hypothetical because it doesn't take into account taxes, fees, varying rates of return and other variables, such as extended market downturns.
To become a millionaire, you can: Invest $250,000 now and $250 monthly at 6.125% and you'll be a millionaire in 250 years at age 275. To be a millionaire in 40 years, you can: Change amount invested now to: $880,000.
Buy a low-cost index fund that tracks the S&P 500; your $100,000 could grow to $1 million in about 23 years. You'll get there even faster by investing additional funds. Add $500 monthly and reach $1 million in just 19 years. Of course, past results don't guarantee future outcomes, but history is on investors' side.
One of those tools is known as the Rule 72. For example, let's say you have saved $50,000 and your 401(k) holdings historically has a rate of return of 8%. 72 divided by 8 equals 9 years until your investment is estimated to double to $100,000.
You plan to invest $100 per month for five years and expect a 6% return. In this case, you would contribute $6,000 over your investment timeline. At the end of the term, your portfolio would be worth $6,949. With that, your portfolio would earn around $950 in returns during your five years of contributions.
Junk bonds are high-yield corporate bonds issued by companies with lower credit ratings. Because of their higher risk of default, they offer higher interest rates, potentially providing returns over 10%. During economic growth periods, the risk of default decreases, making junk bonds particularly attractive.
If you invested $500 a month for 10 years and earned a 4% rate of return, you'd have $73,625 today. If you invested $500 a month for 10 years and earned a 6% rate of return, you'd have $81,940 today. If you invested $500 a month for 10 years and earned an 8% rate of return, you'd have $91,473 today.
Investing as little as $200 a month can, if you do it consistently and invest wisely, turn into more than $150,000 in as soon as 20 years. If you keep contributing the same amount for another 20 years while generating the same average annual return on your investments, you could have more than $1.2 million.
“The idea is simple: Each week, save an amount of money based on the week of the year. So, the first week of the year, you put $1 aside; the second week, it's $2; and the last week of the year, you save $52.” Obviously, you'll need to supercharge this strategy if you hope to reach your goal in 15 years.
Introduction: My name is Geoffrey Lueilwitz, I am a zealous, encouraging, sparkling, enchanting, graceful, faithful, nice person who loves writing and wants to share my knowledge and understanding with you.
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