Meanwhile, the golden rule for saving usually revolves around people putting away 20% of their income for a rainy day. However, there is a better way to save by investing and getting a return on your savings. This savings goal is to reach a figure of $25,000 over a 5-year time period with an initial investment of $500. Finbold ran the numbers to see how much money you would need to put away each month in order to reach that milestone in a period of five years. Namely, the three scenarios that we will be considering include
3% for a cautious portfolio 9% for a portfolio that is heavily reliant on stocks or which tracks one of the major indexes15% for a more aggressive portfolio that encompasses more risky investments that promise high returns.
In order to get these results, calculations were carried out using the Smart Asset investment calculator, which evaluates the growth of assets over time.
Our conclusions
For our conservative portfolio returning 3% annually, we concluded that an initial investment of $500 would need to be topped up monthly with $378. After the 5 years are up the portfolio and savings would be worth $25,017. Further, for the moderate rate of return of 9% per annum, the math looks quite different. Namely, the starting amount is the same at $500; however, the monthly top-ups are now reduced to $322, to give a final sum of $25,069 over a 5-year period. Finally, our more aggressive portfolio would have to have a top-up of ‘just’ $271 per month, to go along with the starting sum of $500. In the end, the sum would reach $25,057 in 5 years with the compound interest of 15% annually.
Compound magic
In summary, if you manage to sustain a return on investment (ROI) of 3% – then it is $378 monthly, ROI of 9% – then it is $322 monthly, and ROI of 15% – then it is $271 monthly. As it stands compound investing is one of the most useful, and fairly low-effort tool that helps people take control of their finances and reach their financial goals. The gist of this ‘magic’ is to start as early as possible, put away some money at a time and invest automatically as well as all the additional money the sums generate. Historically, the markets go up, so one of the three above-mentioned levels of return are more than achievable, which means that the invested money should grow exponentially. Now is a good time as any to get started, to boost your savings, take control of your finances and save for the future. Buy stocks now with Interactive Broker – the most advanced investment platform Related reads: How much 30-year-olds should invest monthly to become a millionaire by age 50How much you should invest monthly to save $100,000 in 10 years Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
