People are always asking me how much do you need to invest to be a millionaire in 5 years. I have always given the same answer on this question, one million dollars. I have been questioned on whether that is lowballing it, high balling it or just right. I wasn’t sure myself so I did some research that hopefully answers that question once and for all!
This article shows you how much you need to invest per month to become a millionaire in 5 years. That’s really fast! It’s very unlikely that you will retire in 5 years. But it’s not impossible. And who knows, maybe if you invest aggressively now, your investments might grow faster than anything you can imagine, and you can retire before your planned retirement date.
How to become a millionaire in 5 years
Becoming a millionaire in five years is an extremely aggressive goal, but it could happen. Although hitting a home run with an investment is what dreams are made of, the most realistic path is to put aside big chunks of money every year. The historical average return for the S&P 500 index is 8%. With that return, you’d have to invest $157,830 each year for five years in order to reach $1 million.
| Account balance | Cumulative amount invested | Earnings per year | Total earnings | |
| Starting balance | $157,830 | |||
| After one year | $170,456 | $157,830 | $12,626 | $12,626 |
| After two years | $354,549 | $315,660 | $26,263 | $38,889 |
| After three years | $553,370 | $473,490 | $40,991 | $79,880 |
| After four years | $768,096 | $631,320 | $56,896 | $136,776 |
| After five years | $1,000,000 | $789,150 | $74,074 | $210,850 |
Obviously investing almost $160,000 each year is not much of an option for the average American household, which makes $78,500 before taxes and living expenses. High-income earners are the most likely people to be able to invest this much on a regular basis. Their professions might include doctors, business owners, and corporate executives.
Just because you may not have a job making this much money doesn’t mean you can’t achieve the goal of having $1 million in five years. There are other ways to make a lot of money:
- Become a real estate investor. Start with wholesale real estate to make quick money, then start buying your own properties to either rent or flip.
- Start your own business. Business ownership can be risky, but the rewards can also be massive. There are a lot of small businesses you can start for $1,000 or less.
- Work for a startup. Companies that are just starting out often give shares of stock to early employees instead of large salaries. If that company goes public or gets bought, your shares could be worth a lot of money.
$1 Million the Hard Way
Let’s say you want to become a millionaire in five years. If you’re starting from scratch, online millionaire calculators (which return a variety of results given the same inputs) estimate that you’ll need to save anywhere from $13,000 to $15,500 a month and invest it wisely enough to earn an average of 10% a year. That means taking calculated risks, diversifying, and avoiding investment fees such as loads and broker commissions.
Obviously, in order to regularly save this much money each month, you’ll need to have a fantastic income. At the low end, to meet the $13,000 a month savings goal, you’d probably need to make around $265,000 annually. The specific number will vary considerably depending on your income tax situation, but the point is that it’s high.
According to the salary calculator at PaycheckCity.com, if you make $265,000 a year, are single, claim two exemptions on your federal tax return, and live in one of the nine states with no state income tax, you’d take home around $185,000 a year, or about $15,400 a month. Saving $13,000 would leave you with $2,400 a month to meet all your expenses—a perfectly reasonable number for many singles, and even some couples.
If you’re willing to be extremely frugal—let’s say you can get by on a mere $700 a month—will it make a big difference? In this case, not really. You’d still need to make almost $250,000 a year.
If you’re in a committed relationship, however, things get a little easier. You can get away with making around $132,500 a year then, as long as your significant other can make up the difference and is on board with your savings plan. Of course, then you’ll have to share your millionaire status.
How much to invest to become a millionaire
According to Stivers, the three most important elements of investing are the amount you contribute each month, the rate of return and how long you have to reach your goal. So when doing the math, Stivers accounted for three different return rates and used a retirement age of 65, which would give 30-year-olds 35 years to reach $1 million. Here’s the breakdown:
- A 30-year-old making investments that yield a 3% yearly return would have to invest $1,400 per month for 35 years to reach $1 million.
- If they instead contribute to investments that give a 6% yearly return, they would have to invest $740 per month for 35 years to end up with $1 million.
- But if they choose investments that yield a 9% yearly return, which is comparably more aggressive, they would need to invest $370 per month for 35 years to reach $1 million.
Compared to those who begin investing at age 25, people closer to age 30 will have to contribute a little more money each month in order to reach the same goal by age 65. Compound interest is most powerful when it has a longer amount of time to grow your money but, still, it’s never too late to start investing — even if you don’t think you have enough money to dutifully invest $370 per month.
A 3% return may be achieved through a conservative portfolio of mostly bonds, whereas a 6% return is a bit more moderate and usually consists of a combination of stocks and bonds. And on the other hand, a 9% return denotes a more aggressive portfolio and can usually be received through a portfolio that’s stock-heavy.
However, it can be very difficult to pick the “right” stocks for your desired return, plus you run the risk of being influenced by market highs and lows and may be tempted to sell stocks at a less-than-ideal moment. However, a tried-and-true strategy is to invest in index funds or ETFs that track the stock market as a whole, like the S&P 500.
According to Investopedia, the S&P 500 has historically returned an average of 10% to 11% annually, so you might expect a fund tracking this index to produce similar returns, though, past returns do not indicate future success.
There has long been a notion that you need to already be rich in order to start investing. However, many investing apps allow users to invest in fractional shares — aka, a portion of a stock’s share based on the amount of money you want to invest rather than the number of shares you want to purchase — with as little as $1. And, apps like Acorns even allow users to invest the “spare change” they accrue from making everyday purchases like coffee, textbooks and clothing.
And, some investment apps offer robo-advisors, like Wealthfront and Betterment, to help you determine which investments make sense for you based on your risk tolerance, goals and retirement date. Robo-advisors also take on the task of automatically rebalancing your portfolio as you get closer to the target date for your goals. This way, you don’t have to worry about adjusting the allocation yourself.
Of course, when you’re just starting out it can feel overwhelming — especially when you get older and start having more and more competing expenses and other goals, like saving for a house, having children or moving to another city. But making a list of all your monthly expenses — and exactly how much money you spend for each — can help lift some of that fog.
Understanding where your money goes can help you identify any unnecessary expenses that have been eating up your income. Then, you can cut back on those things and free up more of your money to put toward investing and expenses you actually care about. And creating a budget or outline doesn’t have to be difficult — it can be as simple as writing out all your expenses in a notebook or using an app like Mint or Personal Capital, but if you prefer to use a stricter method like You Need A Budget (YNAB) then more power to you.
Conclusion
How much would you need to invest in the stock market to be a millionaire in five years? That’s the daunting question many of us are asking ourselves. It’s hard to save money, especially if you’re young and just starting out, but saving is essential to building wealth.
The initial step to financial independence and early retirement is to invest in high yielding dividend stocks that will beat the stock market by a wide margin over the long-term. You can estimate how much you need to invest to be a millionaire in five years by using this calculator.