Is it worth investing if I can only contribute $50 a month?
Is it worth investing if I can only contribute $50 a month?
Assuming I have a time horizon >10 years.
Edit: thanks for all the replies!!
Yes. So much yes.
Yes, and actually with low amounts of money to work with you can make your contributions very efficient. To best spend save for retirement, choose the first option from this list that applies to you (and if you are able to save more later, go down the list after exhausting each option):
- 401k up to maximum company match
- pay off high-interest (>4%) debt
- IRA up to the contribution limit
- investment-type HSA up to the limit
- max out 401k contribution
- personal investment account without tax advantage
For most people, it's recommended to use a traditional 401k and a Roth IRA, but it varies by situation. As for what to invest in, I would recommend a popular low cost ETF or index fund, like Vanguard or SPY. You can also look into ESGs if you want to do good with your money, but your expected earnings may be lower. I'm in ETHO and TICRX.
You might check out [email protected] or [email protected] if you have questions about getting started.
Yes. Investing is always worth it unless you have credit card debit.
Set it up to automatically invest into the lowest fee index fund your broker offers.
The lowest fee ETHICAL index fund. Careless investing is how we got evil corporations.
Can you recommend a single ethical index fund? I've been searching for the past decade
Every time I find one, I look at their holdings and see companies like Google, Meta, Tesla, and for profit banks.
The others have made great points about how any amount adds up. Especially with compounding.
But the most important reason me just be making it a habit. If you are saving $50/month you have a place to put your savings and an investment strategy for that money. The next time you get a pay raise or get rid of some recurring spend it will be natural to start saving $60/month, then $100 and more and more. It is much easier to improve an existing habit than starting a new one. So as soon as you have the chance start that got habit.
Yes, in 35 years with compound interest that would end up between 35-85k ;) sounds great to me
$50 per month for thirty five years saved with no interest at all is $21k, so I can absolutely understand the point of view that it's not worth it if you're currently struggling to scrape by to wait 35 years for what might be just an extra $14k
If that $50 has literally no other use to you, then great, if that $50 can provide fair value for you now, it's a much tougher decision.
I blew a lot of my money when i was younger, something I don't regret spending lots of money on is decent tools, they can last a lifetime if taken care of and can save you money in the long run if you learn to do your own work. Sometimes stuff now is a better investment but it can be super specific depending on your situation.
Taking a step further, if the last thirty five years are any indication, that future $21k would be worth less than today's $10k.
Besides, to overcome inflation, you'd need to average double digit returns on your investment every year for half a lifetime.
Like you say, it's a tough decision if there's anything that can provide you value now. Not to argue against savings, but expecting it to grow exponentially with no effort is folly.
It would be worth it with even $10. Do it.
100% anything you can do is great.
My girlfriend and I have each been putting $50/month into an investment account instead of paying for insurance for our dog, that way if she ever needs a big procedure I can pull money from there if I don't have the savings for it. We've been doing this for 3.5 years and have now built up a good amount! I'll divide the numbers roughly in 2 so you can see what you could be looking at:
Total $2750.
Deposits $2200.
Gains $550.That $550 will cover two vet visits if you're lucky
Still better than pet insurance though, which is a scam (I mean all insurance is but especially pet insurance)
I don't know about that. Both of my cats would be dead if not for pet insurance. One needed a $10k surgery this summer that I was able to afford because of my pet insurance. The other had $4k of surgeries the year before. Both instances my insurance covered 70%. Neither of my cats are much more than 5 years old, just bad luck with their health.
Pet insurance is a good thing for people with a large number of animals - particularly rescue animal boarding.
For most people though, no.
That's 600/yr and a long enough horizon that most diverse portfolios are likely to be net positive (I'm seeing about 5,000 gained with 8% growth in a basic savings calculator)
I'd spend those 10 years trying to free up cash flow but time's a powerful weapon regardless
8%? Thats 0 gains with inflation, right?
7-8% is the standard value used after taking inflation into account. It's really 10%, but inflation eats 3% yearly, on average. Using the metric this way also conveniently means that the value you calculate for the end of compounding (in 35 years) is interpretable in todays dollars.
So 7% interest on 50$ monthly for 35 years means total principal of 21k$ and total of 83k$ (todays value).
See https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
As much as I hate to send you to Reddit, the r/personalfinance flowchart is hard to beat for most people. I’d recommend you start there to make sure you’re not overlooking something like your emergency fund.
This is awesome! Would love to see a version for EU too!
For the most part you can follow it. Pay down debts, save what you can, make a budget but it gets wonky when you hit 401K, IRA and healthcare
Problem is each country in the EU is different. What works for Germany may not work for the Netherlands or Denmark.
As an Aussie I substituted it's and 401K with our pension equivalent called Superannuation. The healthcare is different in AU. Here in Europe it isn't too different to AU, replace 401K and IRA are private pension or one offered through an employer.
I looked around a bit, and while I couldn't find a drawn flowchart for the EU, r/EUpersonalfinance has a page on their wiki inspired by(links to it too) the US flowchart and accompanying text. I hate to plug reddit as well, but here is the link.
(I'm not near a desktop, so can't really copy and paste the info here with functional hyperlinks.)
Link is broken for me over on infosec.pub.
Link is broken for me when I try opening it in a new tab. Something is up with imgur.
Is there a reason to focus on 401k (beyond the employer match) before HSA? Isn't HSA more tax savings advantageous, even if just limited to health care expenses?
I’m not certain why they have HSA after 401k and IRA, but some possible things I can think of:
- HSAs can be harder to take advantage of of the triple tax benefit if you’re retiring early (that is, still younger and healthier)
- HSAs probably have worse investment options than an IRA
- Allowing the user to optimize their Roth vs Traditional mix
Again, I don’t really know because you’re right about the HSA triple tax advantage making it seem better than IRA or 401k, but I’m sure there was a reason given if you care to trawl the subreddit.
Not really if you exclude the employer match from consideration.
Can’t retire on it I guess
hard to beat for most people.
*Utterly irrelevant for most people
Sorted that for you. What the hell is 401k, Roth, medical debt?
Financial advice will always be intrinsically linked to fiscal advice, and that will vary with jurisdiction. Where I live we have no 401k or medical debt, but we have other debt and investment instruments with preferential tax treatment.
The main line of the flow chart is sound.
Hey... hey there, I'd let you know that there are 340M Americans and 8.2B people in the World so... that's like 4% OK... it's... definitely "most people" because we are number 1 OK! USA, USA... /s
Absolutely 100% yes yes yes.
Compounding is your friend. You can play with the values all you want, but this calculator showed me that if you deposited $50/month at 5%/year compounded annually, you'd end up making >$1800 in profit over ten years. Realistically, you should be able to get a better rate and shorter compounding periods once you've passed the threshold amount for a mutual fund or GIC.
And that's assuming you never increase your deposits.
Realistically, whenever you get a raise you should assign some of it to increasing your monthly payments. Your goal should be to increase your payments faster than inflation. Get a $2/hr raise? That'll probably add $250/month to your paycheque after taxes. You should be able to squirrel away $25/month from that at least.
Here's a great piece of advice from The Wealthy Barber (Canadian financial dude): Pay yourself first. See if you can get your investment amount taken directly off your pay, and then you'll never see it, thus be tempted to spend it.
His other advice is to set a goal of 10% of your income to invest for retirement. Seems like a lot, but it's doable for most people who are talking about investing anything, like you.
Remember: The biggest factor in how much you make from investments over time is how early you invest. Invest now. Invest regularly.
Specifically if for retirement, time is your best friend. Anything you can put aside will be multiplied down the years and be much more when you need it most
It's worth saving - investing (I assume you mean in the stock market/index/mutual fund) probably wouldn't yield very significant growth but it is worth saving what you can.
Investing accidently helped me save. If I have money in an account, and I need to use it, I will, but by buying stocks and bitcoin, I don't have that money, I have things that will increase in value that I can sell for money. And there have been a few desperate times that I had to do that, but my brain is far more unlikely to take a hypothetical future loss, than spend all my money today.
Why would the absolute amount of money matter for investing vs. saving cash? Assuming he finds a broker for which absolute transaction fees are negligible, the only important factors should be time window and risk tolerance, both of which are independent of the absolute saving rate.
Compounding debts need to go first if their interest is higher than your savings.
Yes. If you can afford it, dumping that money into an ETF like VT, VTI, or VOO every month for the next 10 years is very likely to result in you turning a profit. Start with a Roth IRA and don't bother with a standard brokerage account until you're able to max out the contribution limit. If you want to do anything more complicated than buy big low cost ETFs study up first and go slow.
Do you have emergency money?
First start emergency fund, then take care of debt. Then build a savings for emergency fund, then invest.
For anyone with stable income, only debt who's interest rate is at or above the potential interest you would earn investments should be paid down first. Any debt at a rate lower than you stand to earn, should be paid over time. Any debt lower than the rate of inflation should be paid as slow as the terms allow without penalty.
So my order of priority is: high interest debt>emergency fund>tax deferred investing>ira and investing>low interest debt>even more cash holding>debt below inflation.
Not everyone has stable income. And for them, attacking debt isn't always possible, especially after they go to get their car inspected and have a $1000 bill to settle in order to get to work for their unstable income. That's starting your emergency fund goes first.
You need your initial emergency fund to reasonably cover "a bump in the road". You then get stable, attack debt, and build emergency fund to be 3-6months expenditures, in case of a serious emergency.
Only then do we begin gambling in the investment markets.
It's honestly probably better putting that amount of money into trying to get a better job over that time period via education, or taking time off to apply for new positions, or something similar.
$6000 total investment over 10 years even with decent interest on top would be made up in less than 2 years with a $5k raise.
Yes. I started with 50/month using Autopilot to get in on the Pelosi investment portfolio. I am up 18% for the year.
S&P is like 23% this year, chasing Pelosi has apparently underperformed.
Yes, saving is like a muscle you need to do it to get better with it. It's far easier to turn 50/months into 200/month as your income grows, than starting at 200/month.
Yeah, finding some free ETF saving plan and investing 50 a month will give you some experience in investing. You can learn about, what's an ETF, what's diversification and how you react personally to seeing the number go up and down.
One has to start somewhere.
I just put extra money in a 5% high yield savings account. It's not exciting, but there's no risk and it will pay off over time
There’s also hardly any reward (comparatively speaking). Yields are crazy high right now on savings accounts, but they’re going to continue to drop, vs investing in the stock market (over the long term) is much more likely to maintain a much higher rate of return. Even at 5%, you’re really only getting about 2% growth since inflation is stuck at 3% right now. That compares to a long term average in the stock market of 7-9% after inflation.
Not to say that OP should do that, necessarily. Especially if they haven’t built their emergency fund which is far more important than investing, until you have a safe amount.
Nah, just piss it away.
If you bought bitcoin for $50 every month in the past 10 years, do you know how much you'd have today?
They said investing, not gambling
Someone didn't do the math