:max_bytes(150000):strip_icc()/making-a-million-investing-in-stock-4148390_FINAL-d25ffc434b1a4b0c842a3a5aefb0c0b5.jpg "Tips on Making a Million Dollars by Investing in Stock (1)")
Investing in the financial markets is one of the best long-term approaches to wealth, but many investorsprobably wonder how long it takes to make a million dollars using the stock market or treasury bonds at a slow and steady pace.
Between 1928 and 1966, the S&P 500—a group of 500 of the largest stocks by market-capitalization—rewarded investors with 9.25% average annualized returns. From 1967 to 2006, investors enjoyed an 11% average annualized return. But just in case that makes you giddy with enthusiasm, S&P 500 average returns were only 7.1% between 2007 and 2018.
Key Takeaways
- The value of your initial investment in the stock market can grow exponentially over time, thanks to compounding returns.
- To estimate how long it might take to make a million dollars in the stock market, you can use a projected 8.5% long-term annualized return.
- If you begin investing in the stock market at age 30, you only need to contribute $5,000 annually to hit the million-dollar mark by age 65.
- Comparatively, if you wait until you’re age 45, you will have to invest $20,000 per year to reach that same $1 million by age 65.
Stocks Tend To Grow Over Time
Much like a credit card given to you by a bank with the expectation of interest payments, you give money to someone, expecting a return on your investment. Both use the same guiding principle: compounding. The value of your initial investment grows exponentially over time. In simple terms, compounding is the cycle of generating additional returns on the money that you previously invested.
To get a clearer idea, look at how these return percentages work out in real dollars. Imagine that you had invested $100 in the S&P 500 in 1928.Here’s what it might be worth over time:
| Result of a $100 Investment | |
|---|---|
1928 | $143.81 |
1938 | $121.53 |
1948 | $229.79 |
1958 | $1435.84 |
1968 | $3694.23 |
1978 | $5081.77 |
1988 | $22,672.40 |
1998 | $129,592.25 |
2008 | $113, 030.22 |
2012 | $193,388.43 |
2018 | $382,870.94 |
Notice that at the end of 1928, your $100would have surged in value to $143.81. Yet, 10years later, in 1938, the value would have dropped to $121.53. In the end, your initial $100 would have grown to over $382,000.
Despite the lofty annualized investment returns, results vary during individual years. Since the turn of the twenty-first century, the lowest annual-return year has been 2008, with a -36.55% annualized decline, while 2013 saw a 32.15% increase in value.During the prior 18 years, there were five negative-return years and 13 positive-return years in the S&P 500:
| S&P 500 and Treasury Bill Rates 2000—2018 | |||
|---|---|---|---|
| Year | S&P 500 | 3-month T. Bill | 10-year T. Bond |
| 2000 | -9.03 % | 5.82% | 16.66% |
| 2001 | -11.85% | 3.39% | 5.57% |
| 2002 | -21.97% | 1.60% | 15.12% |
| 2003 | 28.36% | 1.01% | 0.38% |
| 2004 | 10.74% | 1.37% | 4.49% |
| 2005 | 4.83% | 3.15% | 2.87% |
| 2006 | 15.61% | 4.73% | 1.96% |
| 2007 | 5.48% | 4.35% | 10.21% |
| 2008 | -36.55% | 1.37% | 20.10% |
| 2009 | 25.94% | 0.15% | -11.12% |
| 2010 | 14.82% | 0.14% | 8.46% |
| 2011 | 2.10% | 0.05% | 16.04% |
| 2012 | 15.89% | 0.09% | 2.97% |
| 2013 | 32.15% | 0.06% | -9.10% |
| 2014 | 13.52% | 0.03% | 10.75% |
| 2015 | 1.38% | 0.05% | 1.28% |
| 2016 | 11.77% | 0.32% | 0.69% |
| 2017 | 21.61% | 0.93% | 2.8% |
| 2018 | -4.23% | 1.94% | -0.02% |
If these historic norms hold true, investing in the stock market over the long term should yield tremendous financial rewards.
How Long Until You’re a Millionaire?
Based on the returns from previous years, see how long it might take you to reach a million dollars if you invest $5,000, $10,000, or $20,000 in an S&P 500 index fund. The tricky part of this calculation is in choosing a hypothetical future rate of return.
Going forward, you can use a projected 8.5% long-term annualized return. By averaging the 10.09% returns from 1967 through 2016 with the lower 2007-2018 return of 6.87%, an 8.5%future return is a reasonable estimate. As the U.S. industrial base matures, and GDP growth slows, it’s reasonable to expect future stock market returns to temper.
| Annual Investment Amount | Years to $1 Million |
| $5,000 | 35 |
| $10,000 | 27.59 |
| $20,000 | 20.32 |
| *Assumes 8.5% compounded annual rate of return |
If you begin investing in the stock market at age 30, you might only need to contribute $5,000 annually to hit the million-dollar mark by age 65. Comparatively, if you wait until you’re age 45, then to reach that same $1 million by age 65, you will have to put away $20,000 per year. That’s a difference of $1,667 monthly for the 45-year-old versus $416 per month for the 30-year-old.
If becoming a millionaire is your goal, then investing in the stock market could be a good path. But as the numbers show, investing in the markets isn’t a get-rich-quick scheme. Financial-planning experts will remindyou that stocks are along-term route to wealth building.
Finally, before diving into the financial markets, be sure to save up some emergency cash, so you won't be forced to withdraw money from the markets during a downturn.
Frequently Asked Questions (FAQs)
How much do you need to invest and make money with stocks?
You can get started investing in stocks with just a few dollars. All you need to invest and make money in stocks is a brokerage account. The brokerage offering the account will set the minimum deposit, and some will accept any opening deposit. Some brokerages also offer fractional shares that let you buy pieces of a stock for as little as $1.
How do you make money fast with stocks?
Growth stocks typically experience higher growth rates than other types of stocks such as value stocks ("blue chips"). However, it's important to understand that the potential for bigger gains comes with the potential for bigger losses. During market downturns, growth stocks can be expected to suffer more significant losses than value stocks.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Money Chimp. "Compound Annual Growth Rate (Annualized Return)."
New York University. "Historical Returns on Stocks, Bonds and Bills: 1928-2020."
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