Most people know that saving money is critical to meeting your financial goals, but choosing the right type of account for your savings is just as important. Traditional thinking asumes that Saving and Investing are two different things, but this line of thought is changing. Now you can save on an S&P500 Index with just $5 a month.
Let’s say that in one year – a year that we’ll call Year Zero – we save $100 a month. At the end of that year, we have $1,200 in capital, let’s see the difference of choosing a Traditional Savings Account vs Saving on the S&P500 index. The first one gives you a return of 0.08% a year vs the S&P500 that in the last 100 had a return of 7% a year on average. In order to keep the calculations simple, we’ll assume that the S&P500 return is constant.
Let’s look at what happens in each subsequent year to that investment.
– At the end of the first year, the S&P500 saving account will total $1,238.03.
– The traditional savings account will total $1,200.44
– And you would have contributed $1,200.
At this point you don’t see much difference …. but let’s see what compound interest works on the next 10 years.
– At the end of year Ten, the S&P500 saving account will total $17,105.17.
– The traditional savings account will total $12,047.71
– And you would have contributed $12,000
So … at the end of the year Ten, the S&P500 will give you 358 times more earnings!
($5,105.17 vs $47.71)
There are three big lessons to learn here:
– First, saving early is the key. The earlier you can start socking money away for retirement or other big goals, the better. As you can see from this example here, the longer money sits in an account, the faster it grows in the later years just before you actually use it.
– Second, saving consistently is almost as important as saving early. Just set an amount that you’re saving each month and forget about it. Doing that is a big part of retirement savings success.
– Third, saving on a S&P500 strategy will make significant more return than a traditional savings account. Let the power of compound interest make you grow.
If you want to save on a strategy like S&P500 download the iBillionaire App and open an investment account. It’s easy and cheap.
*This is a simple exercise. Take into account that past performance is not a guarantee of future results. So, the performance of the last 100 years of the S&P500 may change on the future.