How far will a $1000 investment get you?
The answer is pretty crazy…
If you’re young [late teens/early twenties], the answer is astounding! A $1000 investment can reach over a million dollars for sure… and quite possibly over $2 million big ones.
It turns out, you can drastically improve your chances of a “loaded” retirement with compound interest investments.
In this post, we’ll look at how to turn a $1000 investment into $1-$2 million for your retirement.
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Compound interest magic that will rock your world
Am I kidding? Not at all. If you’re young and willing to hustle, you really can turn a $1000 investment into over $2 million. Generation Z is the age bracket to target for capitalizing on insane compound interest gains.
With decades stretching into their horizon, this youngest investment generation has upwards of 45 years before retirement. That’s enough to grow a fortune.
Generation Z and Young Millennials: Claim Your Free Millions with compounding interest investments
Who is Generation Z? Most agree they’re the generation born in the mid-’90s and later. They are “Millennials on steroids” according to an article in the New York Times.
Our focus here is on Generation Z, but 20-something Millennials can also reap huge rewards by starting a retirement account now. Heck, ANYONE can grow free money. It’s never too late to start!
Here’s the scoop on compounding interest investments.
How teens can become millionaires: benefits of investing early
Does that sound like a crazy statement?
How on earth can someone fresh out of high school [or STILL IN high school] turn a $1000 investment into $2.6 million?
A couple of conditions:
- For the $2 million-plus, you must invest when you’re 19-22, with no delay. If you’re in your later 20s or older, don’t stress. You can still grow your $1000 into a nice, sizable sum, and the money that accumulates is still FREE.
- The other condition is to do all you can to begin with that full $1000 investment. Start out with a bang earning your compound interest.
Here are a few suggestions that may help you save towards that initial investment — and keep those $100 monthly contributions steadily pouring in.
Passive earning [no work required!]
These may seem insignificant, but EVERY PENNY SAVED AND EARNED COUNTS! It can add up quickly.
If you’re not already using the super simple cash-back app called Ebates (by Rakuten) every time you shop at places like Amazon, Best Buy, Old Navy, Groupon, Ebay etc. — I literally can’t think of a company that doesn’t partner with Ebates now — you’re missing out on one of the easiest ways to earn money for your investment fund.
Edit: Ebates was just renamed Rakuten, but the program has remained exactly the same.
*You also earn $25 for every friend that signs up… that’s $100 of EASY money with just FOUR friends/family members who sign up and make their first purchase.
EVERYONE shops on Amazon, right?? Just log into Amazon through your Ebates page [and tell your friends to do the same] and you’ll EARN FREE MONEY.
Here’s a screenshot of my Ebates earnings this month. That funds almost 2 months of my retirement account!!
**UPDATE… Check out what was in my mailbox yesterday!
If you’re not signed up for a FREE Ebates account… well…that’s just silly.
For even more extra cash each month you can start a side hustle.
It’s all the rage now — and with good reason.
More and more people are discovering that their unused talents and skills can earn them quick cash online.
Sites like Etsy and Fiverr make it possible for anyone to market their skills and talents. Can you design graphics, or draw great logos? What about writing or editing papers?
This could be the perfect side hustle if you’re wanting to make some really good money in your spare time. Check out the FREE workshop and Holly will show you how to build a six-figure career as a freelancer!!
Make a list of your best skills. You may be surprised to see what you come up with!
What is compound interest and how does it work?
This is where it gets exciting. According to Merriam-Webster, compound interest is “interest computed on the sum of an original principal and accrued interest.”
The money you initially put into a retirement account, for example, will earn interest, of course, but so will its interest. Interest that grows its own interest is pretty cool!
Take advantage of this while you’re young and have 40-plus years before retirement. The sooner interest kicks in on your initial investment, the sooner that interest begins earning money as well. Compounding interest can make you seriously wealthy!
Tick tock — every day that you don’t have your $1000 in an account earning that interest is money lost.
“The most powerful force in the universe is compound interest.” Albert Einstein
An Exciting Example of Compound Interest
Are you excited yet?
Here’s a hypothetical example. Feel free to imagine yourself in Susan’s glorious shoes.
19-year-old Susan opened an individual retirement account (IRA) very early. She had a $1000 investment to start with, thanks to some savings and graduation money, and committed to a $100-per-month investment thereafter.
Several decades later, Susan turns 65 and is ready to retire and begin taking withdrawals from her IRA. She’s had 46 years to grow interest on her initial $1000 investment plus her $100-per-month deposits.
The initial investment, plus her monthly contributions, came to a grand total of $56,200 over the 46 years she has owned her IRA account.
Her retirement balance is–drum roll–$2,685,908.81. She has earned a total of $2,629,708.81 in free interest money.
Let that sink in. Susan invested only $100 per month after that first $1000 at age 19. She now has more than $2.6 million to play with. How’s that for compounding interest investments!?
What Happens to compound interest power when you wait?
Bill is Susan’s older brother. He’s studying finance as a graduate student and aspires to work on Wall Street. Unfortunately, Bill’s high school didn’t offer personal finance. He started an IRA account when he was 26.
With the same initial $1000 investment as his sister, and a monthly contribution of $100 — after 39 years of growth — he still came out a millionaire. We can’t feel too sorry for him.
His total $47,800 investment, over the 39 years, grew to $1,158,661.53 by the time he reached 65. He earned $1,110,861.53 in free compounded interest. Not too shabby, Bill.
Compound Interest Investment Calculator
You can find several compound interest investment calculators online, including Suze Orman’s website, where you can play with the numbers. They’re great tools to estimate the amount of compound interest you could earn at any starting age.
Experiment with varying amounts of initial investment, along with the monthly contribution you’re willing to make. Plug your numbers into any compound interest investment calculator, and witness the magic of compound interest!
10 Percent Return on Investment (or more)
The calculated earnings from the hypothetical investment stories above are based on 12% average yearly interest. When you open an IRA account, the interest earned, and the number of years your money grows, will determine your end result.
Obviously, the more years you can grow your money, combined with a decent amount of interest that compounds, equals a great recipe for growing wealth.
12% Compound Interest Accounts
Is a 12% compound interest account even possible? Many people will argue that it’s not realistic.
While it is true that interest returns on investment can always vary, a 10 percent return on investment or even more… is totally doable. A buy and hold investment mindset can present you with mutual funds that fall into the 12% compound interest account category.
Based on three of my own mutual funds with Vanguard, the growth rates over a five-year period right now are 12.9%, 13.2%, and 17.3%. Money guru Dave Ramsey has a great article about the reality of a 12% interest growth rate.
Mutual Funds Compound Interest
Related article: Roth IRA: The Rockstar of Retirement
There are dozens of investment types, but the mutual fund is a strong choice when you start an individual retirement account. You’ve most likely heard the term “portfolio.”
Imagine a portfolio of your finest work samples. These are what you want a future employer to “invest in” or take notice of. They have value, and most likely include a diverse array of your best skills.
An investor’s mutual fund is a collection of diverse investment samples that are chosen to bring you value. An easy way to imagine a portfolio is like a pie diagram with various pieces.
A mutual fund may have a variety of small and large company holdings along with a nice mix of U.S. and international businesses.
With a mutual fund, an investor has no ownership of the companies listed in a portfolio. However, they do own shares of the fund invested in them.
Buying mutual funds is a way for many investors to put their money together to take advantage of the earnings of well-performing companies. There is a great variety to choose from as well. High-risk high-return investments are certainly an option if you have a lot of time like most young adults do.
But if you’re more comfortable with moderate risk investments, there are countless mutual funds for compound interest in all different ranges of investment risk.
*Higher-risk options for growing wealth more quickly can be worth exploring once you’ve set up a dependable retirement account. Jeff Bishop is a leading EFT trader with a free webinar on his money multiplier strategy.
Benefits of mutual fund IRAs with compounding interest:
- You can get started with only $100
- You don’t need to know anything about the stock market
- Investment companies specialize in these funds so you don’t have to
Best Places to Invest Money Right Now
There are dozens of reputable investment firms to choose from. Here are my top picks, but I encourage you to do some research and find what best fits your needs.
Vanguard’s reputation for dependability, low-cost management fees, and performance is legendary. “94% of Vanguard no-load mutual funds performed better than their peer group averages over the past 10 years.”
No-load funds are mutual funds with no commission or sales fees when you choose to buy and sell. Vanguard’s extremely low management fees and very helpful investment counselors make them an excellent choice for new investors.
The lowest cost fund is the Target Retirement Fund; you can start with $1000. Once you’ve hit $3000, you can choose from Vanguard’s other stellar-performing funds. Vanguard makes it easy to buy or exchange up when you’re ready — all with no FEES!
Charles Schwab is also a great choice for beginners. With 24-hour telephone support and over 3,000 funds with no transaction fees, Schwab is a great contender in the amateur investment scene.
If you don’t have the $1000 to open an IRA at the moment, Schwab will waive that minimum as long as you commit to investing $100 per month.
Automatic bank transfers make this an easy process. And if you leave it in place after reaching that $1000 goal, you’ll knock it out of the ballpark with interest growth.
Generation Z and young Millennials, do everything in your power to fund that initial $1000 — and if you can’t swing that yet, start now with a no-minimum IRA.
If you can only put in $50 per month for a while, that’s better than not starting at all.
When Albert Einstein discovered the formula for compound interest, it was truly one of the greatest mathematical discoveries. With a 10% interest rate, money doubles every 7.2 years. That, my friend, is impressive!
Video: Warren Buffett and Compound interest.
If you’re not convinced yet, check out this video featuring Warren Buffett and how he has used the power of compound interest.
Now you know where a $1000 investment can take you. And there’s no sense arguing about 12% compound interest accounts being realistic. The real point is, you’ll always come out ahead if you start investing now!
Compounding interest investments will earn you a ton of FREE money. When will you start earning yours?
Related investment AND SAVINGS articles:
- Roth IRA: The Rockstar of Retirement
- How to Open An IRA — For Beginners
- How to earn extra money with Rakuten
Fidelity is another good brokerage to consider. And of course there are financial processionals. Just be sure to understand what service you’re getting for what you pay. I’d recommend a fee-only financial planner versus an investment advisor. Investment advisors, more often than not, tend to be sales people who get paid commissions. A fee-only planner doesn’t get financial benefit from recommending one product over another.
Hi Brad!
Thanks for the great input. Fidelity is definitely a great choice — right up there with Vanguard. Great points on the financial advising also. It always pays to do your due diligence before working with a financial planner or advisor of any kind. Ask lots of questions, see if they’re working independently, and definitely be aware of the fees and costs up front. Thank for weighing in!
I enjoyed reading this post, although I am somewhat sceptical in regards to 40 years of 12% returns. We are currently in one of the longest bull markets in history, commencing post GFC. Index funds have certainly performed fantastic as a result. Sadly bull markets end (this one included) and usually do with quite a bang. The aftermath usually condemns index funds to years of underperformance as it has done previously. There will be no 12% pa during these times, I can assure you. To emphasise this point just take a look at a chart of the Japanese index starting from the 80’s.
Thank you for your input, Adrian. You are correct in that there are never any guarantees! But if Warren Buffett and other investing geniuses made their fortunes by buying and holding and not watching the market too closely, then that’s good enough for me. 🙂
Thank you for this wonderful advice. Me and my husband are 26 years old and need to get a jump start on this. Again thank you for this article.
You are most welcome, Brittany! Happy investing, and may the interest always be in your favor. 😉
Superb article Stephanie! compound interest can change everything for people but it can be a bit on the slow side. It can take so long to grow via compound interest that you could die before you get your return! Still it is a principle that I wish was taught in school more frequently!
Thanks for the comment, Russell!
Hopefully most of us get at least a few decades or more to watch that money grow before we die… but, as we know, there are no guarantees! 😉
I think everyone, people who saved and invested early, which we did, still wonder how much more they’d have now if they had just started a little earlier and saved a tiny bit more! Great post!
This is a really great article. I even pinned it which I don’t normally do unless it’s something I would try. I do have a question, however, without doing the research myself, how old do my children have to be for me to open a retirement fund on their behalf? I was thinking about starting now, and they are 11 and 14. I could start with $1000 initial investment each and $100/child/mo.
I’ve also started a blog on simpler savings methods for people just starting out. I used to be homeless, and I’m recording my journey from homelessness to home ownership through daily saving hacks, side-hustles, and paying of all debt with a little F.I.R.E. methods added in there. Please check me out at savedontslave.com. I’m also on pinterest.
Thank you, and may this blog ever be in your favor!! 🙂
Wendy – Thank you so much for this. Yes, start small and then it eventually snowballs. And, good for you on your blog and making life changing moves. I commend you. And, I can relate as 3 years ago, I was $238,000 in debt. Now, I’m down to $109,000 thanks to my blog. 2 more years to go!
– Debbie