There's a simple formula to making a lot of money by investing.
Investing can allow your money to work for you. And the effects can be magical if you do it right. In fact, with a smart investment, it's possible to turn $30,000 into more than half a million dollars while taking very minimal risk.
Sound too good to be true? Here's the reality of how this can happen.
This one simple investment could turn into a huge nest egg
So, how can you turn $30,000 into $500,000 without taking a huge gamble on losing money. It's simple. Put the money into an S&P index fund and leave it alone for 30 years.
An S&P index fund is an investment designed to mimic the performance of the S&P 500. That's a financial index made up of around 500 of the largest businesses in the United States. It's often seen as a proxy for the stock market as a whole, and it's consistently produced average annual returns of around 10% over the long term.
If you invest $30,000 and earn an average 10% annual return over the course of three decades, you should end up with about $523,000.
To get this half a million-dollar nest egg, you won't have taken a huge amount of risk either. The S&P 500 doesn't produce positive returns every year. But consistently over time, large American businesses as a group continue to grow, so losing a lot of money by investing in 500 of them is almost inconceivable. In fact, if you had put your money into the S&P fund at any point and left it alone for at least 20 years, you would have turned a profit no matter how poor your timing was for your initial investment.
Investing early is key to making this strategy a success
While turning $30,000 into $500,000 is effortless and low risk if you invest in an S&P 500 index fund, the key factor with this approach is that you need a lot of time for your money to grow so much.
It's not impossible for most people to give their money 30 years to grow. If you invested $30,000 by age 35, you'd have your half a million dollar nest egg by the time you reached 65 (a pretty standard retirement age). Since most people start working in their mid-20s or beyond, you'll have a decade or so to amass $30,000 by age 35 by saving about $3,000 per year.
Now, you may decide you need a larger nest egg than $500,000. In fact, most people will. But the fact that you can turn a $30,000 investment into so much money over time shows the power of investing and leaving your money alone. Of course, once you've saved and invested $30,000, you can keep earning and putting that additional money to work for you as well.
You can use the calculators on Investor.gov to figure out how much you'd personally need to put into an S&P fund to hit your target savings amount, and if you stick to your plan, you can feel pretty confident about achieving your savings goal.
Of course, you may also prefer to look into other investments that can potentially provide more than a 10% average return over time. Carefully selecting a mix of individual stocks could allow you to make that happen. But you take on more risk with this approach, so think carefully as you decide which investing strategy is best for you.
If you want to minimize the chances of loss and make sure your money turns into a small fortune over time, investing in an S&P fund and sitting back and waiting could be the way to go.
