The stock market can be intimidating at times, but investing is one of the easiest and most effective ways to build long-term wealth.
You don’t even need to be rich or an experienced investor to start making money in the stock market. With a smart strategy and the right investments, you can effortlessly turn $3,000 into $84,000 or more. Here’s how.
The secret to making money in the stock market
There is no safe way to get rich overnight by investing. But with enough time and consistency, you can make hundreds of thousands of dollars, or potentially over $1 million.
With the help of compound earnings, your money can grow exponentially as you spend more time growing. With compound interest, you not only get a return on your initial investment, but also on your total account balance. The more you earn, the faster your savings will accumulate.
Because compound earnings are so powerful, you don’t need to invest a lot to see significant growth over time. But the longer you can keep your money in the market, the more you will earn.
The right investment to build wealth
The types of returns you will receive from your investments depend on where you invest. There is no absolute right or wrong way to invest, as it will depend on your risk tolerance and personal preferences.
Although one of the safest and simplest options S&P 500 ETFs — eg Vanguard S&P 500 ETF (FLIGHT -1.07%) or iShares Core S&P 500 ETF (IVV -1.08%)for example.
The S&P 500 ETF tracks the S&P 500 itself, meaning it contains the same stocks as the index and is designed to reflect its performance. The S&P 500 contains the stocks of 500 of the largest and strongest US companies, making the ETF a strong (yet low-risk) investment.
Historically, the S&P 500 has earned a rate of return of about 10% per year. While its annual returns have often fluctuated wildly, all the ups and downs have averaged about 10% per year over the decades.
If you invested $3,000 now with an average annual return of 10% and just let your money sit, it would grow to $84,300 in 35 years — assuming you didn’t make any additional contributions at that time.
Supercharging your savings
Although $84,000 is a lot of money, you can win Many and more by investing a little every month on top of your initial contribution.
Again, thanks to the beauty of compounding earnings, you don’t need a lot of money to get started. For example, you invest $3,000 initially and $100 per month. Assuming you’re still earning an average annual return of 10%, here’s roughly how much you’ll accumulate over time:
| Number of years | Total savings |
|---|---|
| 25 | $150,000 |
| 30 | $250,000 |
| 35 | $410,000 |
| 40 | $667,000 |
Source: Author’s calculations via Investor.gov.
The more you can invest every month, the more you can earn. For example, if you can contribute an extra $300 a month, all other factors remaining the same, you could end up with just over $1 million after 35 years. At $500 a month, that number rises to $1.7 million.
The key to building wealth in the stock market is to start early and invest consistently. Even if you can’t afford to invest a lot right now, just a small amount can grow significantly over time thanks to compound earnings. But the longer you wait, the harder it will be for your savings to grow.
Making a lot of money investing is easier than you think, but time is your most valuable asset. The sooner you start, the more you can earn.