If You Had Invested $1,000 in the S&P 500 20 Years Ago, Here’s What You’d Have Today

• Investing in the S&P 500 can be a smart way to build long-term wealth.

• The more time you spend saving, the more you can earn.

• By making regular small contributions, you can earn more while reducing the risk of volatility.

• 10 Stocks We Like More Than the S&P 500 ›

The S&P 500 (SNPINDEX: ^GSPC) is the power of the index, and the last couple of decades have been particularly profitable.

Investing consistently over decades is one of the most effective ways to increase your income while limiting risk, and the longer you let your money grow, the more you can earn. If you had invested in an S&P 500 tracking fund 20 years ago, this is roughly how much you would have today.

Perhaps the best part about long-term investing is that it helps small amounts go further. A one-time investment can grow exponentially over decades, and if you can afford to keep investing small amounts, you can earn even more.

Since 2005 in November, the S&P 500 itself earned about 454 percent. If you had invested $1,000 in an S&P 500 index fund or an exchange-traded fund (ETF) at that time, you would have more than $5,500 today.

This number means you made a lump sum without investing anything else. If you can change this, investing small amounts regularly can help you build up your money faster.

Over the past century, the total return of the S&P 500 has produced a compound annual growth rate of about 10%. At that rate, if you invested $100 a month, you’d have almost $70,000 in 20 years. After 30 years, you would have almost $200,000, all other factors remaining the same.

A one-time investment can help your money grow over time, but it also means you run the risk of investing at the wrong time. If you only buy at record prices and never buy at market lows, you may be paying more than necessary for your investments.

But at the same time trying to time the market and only investing at low points is also risky. The longer you wait to buy, the more precious time you’ll lose to grow your money. So the smart average is the dollar-for-dollar average of your investments.

With dollar cost averaging, you invest the same amount at regular intervals throughout the year—monthly, quarterly, or whatever schedule you choose. When you invest regularly, you will inevitably buy at both high and low prices. Over time, this can balance out some of the price swings.

If you can only afford to make a lump sum contribution, it’s much better than nothing. But if you can keep investing even a little, it can help you earn a lot more in the long run.

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Katie Brockman has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

If You Had Invested $1,000 in the S&P 500 20 Years Ago, Here’s What You’d Have Today was originally published by The Motley Fool