How Much a 25-Year-Old Needs to Invest to Make a Million Dollars

There is a lot of advice on , but one of the most important tips is to start investing as early as possible. Twentysomethings are usually divvying up their modest paychecks to pay rent and student loans bills, build an emergency fund and still have a social life.

But, says financial advisor Brian Stivers, they shouldn’t put investing on the back burner.

CNBC Select asked Stivers, founder of Stivers Financial Services, to help calculate how much money a 25-year-old would need to invest each month to earn $1 million.

“When it comes to investing, there are three very important components,” Stivers said. “The amount you contribute monthly, your rate of return and how long you have to save.”

When crunching the numbers, he accounted for three different return rates and used a retirement age of 65, which would give a 25-year-old 40 years to reach the $1 million goal.

Here’s what we found:

• A 25-year-old investing at a 3% annual rate of return would need to contribute $ 1,100 a month for 40 years to reach $1 million.
• If they invest at a 6% annual rate of return, they would only need to invest $530 a month for 40 years to reach $1 million.
• If they choose more aggressive investments that yield a 9% annual return, they would just need to invest $240 a month for 40 years to reach $1 million.

A higher return lets you invest less each month and still achieve the same goal. A 3% return is common for a conservative portfolio of mostly bonds, while a 6% return is a more moderate risk and usually consists of a combination of stocks and bonds.

A 9% return is on the aggressive end and usually requires a portfolio that’s stock-heavy.

A common strategy is to invest in index funds or ETFs that track the overall stock market. The S&P 500 has historically returned an average of 10% to 11% annually, so you might expect a fund tracking it to produce similar returns. (Note that past returns do not indicate future success.)

A stock-heavy portfolio is riskier, but a 25-year-old has more time to weather market dips and recover after losses, so they have a higher . If you aren’t sure how to create a portfolio that adequately reflects your risk capacity, robo-advisors like Wealthfront and Betterment can help.

Stivers acknowledges the rising cost of living and crippling student loan debt can make it hard to find money to invest, but he encourages 20somethings to prioritize.

“I would start by encouraging them to look at three months’ worth of their debit or credit card statements and create a list of where they’re spending their money,” he said. Making a budget will help you identify any unnecessary expenses and free up money to invest.

Becoming a millionaire is a great dream, but Stivers says young people shouldn’t make that their only goal.

“Just start somewhere,” he told CNBC Select. “If you can’t contribute $30 per week, maybe you can just invest $10 per week. Just getting into the habit of investing small amounts can help.”

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