What $5 a Day Invested From Age 25 Actually Becomes — the Number Is Staggering
Investing $5 a day seems insignificant. After all, with that $5, you could buy a coffee or make a minor impulse purchase.
However, if you begin at age 25, that same $5 invested could grow to roughly $961,000 by age 65, assuming a 10% rate of return. Even with a more modest 7% rate of return, you could grow it to approximately $397,000 by age 65. The average rate of return of the S&P 500 is 10%, according to SoFi. For disciplined investors, it’s relatively safe to assume your return will be in that range.
Although the daily amount is small, the real power is the time you’re giving your investments to grow. Find out more below.
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Developing an Investing Habit Is Key To Growing Wealth
Thinking that investing $5 a day is negligible is understandable. Saving for retirement doesn’t require a substantial amount to begin. Investing is like a muscle; it rewards habitual practice. That $5 daily investment can turn into the following by age 65:
$397,000 with a 7% annual rate of return
$531,000 with a 8% annual rate of return
$961,000 with a 10% annual rate of return
Saving $5 daily seems realistic, especially for people on a budget.
“The dollar amount is the least important part. At 25, you're not building wealth yet — you're building the habit and the habit is the real asset. Nobody feels rich putting in $5. They feel rich decades later because they never stopped,” said Matt Conroy, founder of Conroy Capital, LLC. Delaying building that habit only means you need to save more in the long run.
Compounding Accelerates Your Actions
Starting with a $5 daily investment takes advantage of a key tenet in personal finance, compound interest. The idea is simple: your returns earn more returns. If you begin investing $5 daily at 25 and continue for 40 years, you’re only contributing approximately $150 monthly and $73,000 it total.
That amount could grow to nearly $1 million.
“Time is the one ingredient you can't buy back later. Starting in your 20s gives your money the longest possible runway to grow on itself and those early years end up doing the heaviest lifting,” explained Conroy. Other financial experts concur. The ideal age to start investing is in your early 20s, as reported by CNBC.
Consistency Is Vital
Stock picking may be fun, but consistency is what generally matters in investing. Markets rise and fall and you may face losses that make you uncomfortable in the near term, but they're inevitable. Being consistent in light of such possibilities is essential.
Dollar-cost averaging, which involves investing the same amount regardless of market conditions, is a practical way to stay the course.
“Accumulating wealth over the long term is really not difficult strategically,” said Robert R. Johnson, Ph.D., chartered financial analyst (CFA), chartered alternative investment analyst (CAIA) and professor at Creighton University. "Dollar cost average into a broadly diversified stock fund and invest whether the market is up, down or sideways."
Staying the course at all times can be challenging, so having a long-term view is beneficial.
Automation Can Help You Invest $5 Per Day
Life gets busy and it’s easy to forget investing. Automation is a helpful way to avoid this and to continue growing your investments. Most employer-sponsored 401(k) plans automate contributions, but you don’t have to stop there.
Online brokerages and investing apps also let you automate contributions.
“The biggest advantage of automatic plans are behavioral underpinnings of the plans,” Johnson said. "If we are enrolled in an automatic savings plan, inertia and the inherent laziness of people tend to work in our favor."
It’s not fancy or advanced, but if you automate and continue a disciplined approach, your investments are likely to benefit over time.
Investing $5 a day may seem inconsequential, but over decades it can grow to a sizable amount. You don’t need substantial funds to start investing. Starting small and developing your investing muscle is the best way to grow wealth.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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