Investing itself can come with many ups and downs – the emotional turmoil you put yourself through when your returns dip or… god forbid… go red. However, there is a real opportunity with investing to seriously supplement your income – here we’ll discuss how much you need to invest to make $1,000 a month.
You need to invest $150,943.39 at a return of 7.95% in order to generate $12,000 of growth per year ($1,000 per month). Over the period of 5 years, the FTSE All-Share tracker generated this exact return and it outperformed growth-shares, dividend-shares, bonds and mutual funds!
So there are a few things to consider when you’re assessing how much you need to invest to make whatever figure you’ve set your eyes on. These include available cash, desired timeline, regularity of investment, type of investment and even more!
To get yourself really clued up on the whole investing thing, I’ve got a few books that I’ve read which you might like – you can find them here. But I’ll explain all you need to know for this article so it’s no biggie.
What we’re going to do here is break each of these elements down into granular detail so you know EXACTLY what section you fall under and get you comfortable with what you need to do to get it done.
Investment Types
Probably the biggest factor that will determine how you get to and, more importantly, SUSTAIN making $1,000 a month is the type of investments you opt for and the structure of your portfolio.
Stocks & Shares
First on our list is Stocks & Shares. These are very easily accessible and very widely spoken about online – you hear about people bragging to be ‘in Tesla’ before it was cool but this is probably the best example I could find to demonstrate a stock that is unlikely to be sustainable.
When assessing how we’re going to make $1,000 a month from Stocks & Shares, we’ll need to break this down into 2 parts. Earning through higher growth or through cash dividends.
High growth
This option is best suited to investors who like to get risky with their investments. The high risk -v- high reward entices them in and there are some exceptional opportunities to rocket your investments in quite a short amount of time.
So what would you need to invest to make $1,000 a month in growth? Well, we’re going to have to make some assumptions but my personal investment portfolio is mainly geared to higher growth and I’m hovering about the 7% mark after my first year (including a pandemic!).
Another assumption we’ll need to make is how much money you have available to invest. This is going to be the limiting factor for most people as they don’t have the full amount needed to generate $1,000 a month based on this 7% return so the capital needs to be built up… by investing.
Enough talking – let’s take a look at the numbers…
- In order to generate $1,000 a month, we need an annual return on our investments of $12,000 – because there’s 12 months in a year, right?
- We’ve assumed a solid high growth portfolio is going to bring you around a 7% return.
- If we work out what figure would bring back $12,000 as our 7% return, we get to $171,428.57.
Now I know what you’re thinking – how TF am I going to get $171,428.57 to invest? Well, this is our END goal. It’s likely to get there, we’re going to need to build this up over time. So how long will that take?
Let’s make some more assumptions – you’re able to invest $250 a month and you start with a portfolio value of $1,000. How long is it going to take, based on a 7% return to buying up this $171k? It will take just under 23 years!
‘But Alex, I can’t wait that long :(‘ – well, your only option really is to up the amounts you invest. So let’s have a little look at a table to see how much you need to invest per month -v- the time it would take to hit $171,428.57.
| Initial Deposit | Average Annual Return | Monthly Contributions | Time Taken To Reach $171k |
|---|---|---|---|
| $1,000 | 7% | $250 | ~23 years |
| $1,000 | 7% | $500 | 15-16 years |
| $1,000 | 7% | $750 | ~12 years |
| $1,000 | 7% | $1,000 | ~10 years |
Based on the above, you can determine what best suits your budget and work out roughly how long you’d need to be contributing in order to get to the point where you’ll be earning $1,000 a month from your growth share investments.
Dividends
Our next type of stock is the ‘Dividend stock’. These stocks are invested in for the main purpose of getting some nice returns through dividends. However this is usually at the expense of growth.
Dividend stocks tend to be very well established companies with not an awful lot of ambition to grow much further. This is why they’re happy to pay out more of their profits to shareholders, rather than reinvesting it back into the business to promote growth.
So what’s the sort of returns from Dividend Stocks? I’ve found a few stocks recommended by eToro that seem to have the highest dividend yields and we’ll assume we’ve invested in them for the purposes of our workings.
- PepsiCo – 3.07%
- Kimberly-Clark – 3.31%
- CVS Health – 2.9%
- Diageo – 2.43%
- Tritax Big Box REIT – 3.53%
Assuming we are investing equal amounts into each investment – our return is approximately 3.05%.
You’re probably wondering why you’d ever consider opting for this as you could just stick with growth stocks for your 7% return. The answer is, growth stocks are very high risk and could easily go bust and drop to zero. Dividend stocks are fairly consistent with their growth (i.e. not an awful lot) and quite reliable in terms of being paid out a dividend.
As this is a much lower risk way of investing, you pay the price of some of your returns. However, with the lower risk, you may be willing to invest more so all may not be lost.
Based on our 3.05%, we want to work out how much our investment should be to generate $1,000 a month:
- Same as with stocks, we want to get to an amount that returns $12,000 as a 3.05% return.
- $12,000/3.05%
- We need $393,442.62… ouch.
We now need to work out how to get to $393k as, if you don’t have the $171k needed for growth stocks, there is NO WAY you’re going to have this kind of money.
| Initial Deposit | Average Annual Return | Monthly Contributions | Time Taken To Reach $393k |
|---|---|---|---|
| $1,000 | 3.05% | $500 | ~36 years |
| $1,000 | 3.05% | $750 | ~28 years |
| $1,000 | 3.05% | $1,000 | 22-23 years |
| $1,000 | 3.05% | $1,500 | ~17 years |
As you can see, to earn $1,000 with just dividend stocks is going to take quite a lot of investment and quite a lot of time. This will obviously be fast tracked if you have a bigger deposit and/or higher month contributions.
Stocks & Shares Roundup
We’ve looked at high growth stocks versus dividend stocks and assumed different growth rates. With an assumed 7% annual return for growth stocks, we’d need $171k to earn $1,000 a month – we can either invest the $171k as a once chunk to earn right away or invest $1,000 a month for 17 years to get there.
With dividend stocks, we’ve assumed a lower rate of 3.05% based on recent figures for top performing dividend stocks. The rate is lower because dividend returns are almost certain, whereas growth stocks can be very risky. To earn $1,000 a month from dividend stocks, we need to invest $393k which can take 17 years to accumulate based on $1,500 monthly contributions.
Bonds
Bonds are probably the next best known thing to invest in on the stock market – aside from stocks/shares. But what exactly are they?
By definition, “Bonds are investment securities where an investor lends money to a company or a government for a set period of time, in exchange for regular interest payments” – Forbes.
In short, it’s a loan to a company or government and they pay you interest.
Bonds are seen as much lower risk than shares as they only seem to fluctuate mildly – the only key thing to remember here is if you’re looking for capital growth, bonds tend to be inversely proportional to stocks so if we’re in a bull market – maybe try to steer clear.
Corporate Bonds
The returns from Corporate bonds can vary based on the debt they are made from. Corporate bond debt is rated as such that AAA is the highest, the BBB, all the way down to D. Bonds with D rated debt are referred to as junk bonds.
An article from mindfullyinvesting suggests average returns from AAA Corporate bond return 6.01% on average. This rises to 7.25% for BBB rated bonds and 8.03% to Junk rated bonds.
Now you may see the 8.03% and rub your hands together – after all, it’s a low risk bond and beats the risky high growth shares, what’s not to love? Unfortunately, the lower the grade of debt, the more likely the bond will go bust i.e. the company can’t afford to pay you back the money.
For the purposes of our calculations, we’ll assume you’re a fairly prudent investor and would opt to invest in the highest grade corporate bond for a 6.01% return.
So to get our $1,000 a month, we want to find the figure where $12,000 represents our 6.01% return. If we put it all into a calculator, our required investment amount comes to $199,667.22.
I’m guessing no-one has that laying around so we’ll look at our options to build up the capital through investing.
| Initial Deposit | Average Annual Return | Monthly Contributions | Time Taken To Reach $199k |
|---|---|---|---|
| $1,000 | 6.01% | $250 | 26-27 years |
| $1,000 | 6.01% | $500 | ~18 years |
| $1,000 | 6.01% | $750 | ~14 years |
| $1,000 | 6.01% | $1,000 | 11-12 years |
Therefore, by investing $1,000 a month for 11-12 years, you should have the amount of money needed to earn $1,000 a month in investment returns without having to spend another penny.
Government Bonds
Based on a CNN article, the average return from government bonds is around 5.5%. You’ll note this is lower than our Corporate bond, and for good reason.
How many companies go bust versus how many governments go bust? Don’t need Google to figure that one out right?
The lower risk of the bond dropping to zero means we can’t really expect as much returns – this is clear when looking at the ‘High Risk v High Reward’ metric. Lower risk therefore means lower reward!
In order to get to a place where we’re earning $1,000 a month from our 5.5% returns, we need a total investment amount of $218,181.81.
Let’s see how we can invest our way to get to this figure…
| Initial Deposit | Average Annual Return | Monthly Contributions | Time Taken To Reach $218k |
|---|---|---|---|
| $1,000 | 5.5% | $250 | ~29 years |
| $1,000 | 5.5% | $500 | ~20 years |
| $1,000 | 5.5% | $750 | 15-16 years |
| $1,000 | 5.5% | $1,000 | ~12 years |
Funds & Trackers
Funds
We’ve covered Stocks/Shares & Bonds but is there anything else to invest in? Yes – Funds. Now funds are essentially just professional portfolios which you can invest into to share in their gains.
Funds are a great option as it allows someone to do all of the investing on your behalf to make sure you’re never stuck on a losing stock and you don’t really need to lift a finger.
You can get funds that are predominantly shares built, predominantly bonds built or a little bit of both.
Now the returns that I’ve been getting from funds have been phenomenal over the past year. To put it into perspective, I’ve got 2 funds that have returned over 10% and another 2 funds that have returned over 15% over the past year!
But that’s not the same for all funds so let’s take a nice clean 7% return on investment – assuming you’re done your research and feel that’s a sensible amount.
Our figures are going to be the exact same for our growth share figures (as they’re the same rate of return) so here’s a copy of the table for context.
| Initial Deposit | Average Annual Return | Monthly Contributions | Time Taken To Reach $171k |
|---|---|---|---|
| $1,000 | 7% | $250 | ~23 years |
| $1,000 | 7% | $500 | 15-16 years |
| $1,000 | 7% | $750 | ~12 years |
| $1,000 | 7% | $1,000 | ~10 years |
The only real difference here is that funds do cost you a little more as this is how fund managers take their money so the figures may be a little overstated i.e. it might take a touch longer to get there but it’s small.
I’d prefer to lose a tiny percentage of my investment and know that my portfolio is being managed by a crack team of professionals – after all, 99.95% of something is a hell of a lot better than 100% of nothing!
Trackers
Finally, our last investment we’re going to cover is Trackers or ETFs. These are funds that aren’t actively managed and just follow the performance of a given index, sector, commodity or other asset.
An example of one is the FTSE All-Share tracker fund. This just follows the movement of the overall performance of every single share in the FTSE. When traders say they want to ‘beat the market’ – this is essentially what they’re aiming to beat.
From 11/06/20 to 11/06/21, the FTSE All-Share tracker fund has returned 18.94%… which is crazy. However, this can be attributed to the economic bounce back following the pandemic so we won’t use this figure to determine our expected returns.
If we take the average percentage movement over the past 5 years, we get 7.95% so we’ll use this as our average rate of return. This is even more if you look at the S&P 500 which returned an average of 17% over 5 years!
The amount needed to produce $12,000 a year as a 7.95% return is $150,943.39. This is our lowest figure out of all of our investments!
However, it’s still quite a big figure so let’s take a look at how we can build this…
| Initial Deposit | Average Annual Return | Monthly Contributions | Time Taken To Reach $151k |
|---|---|---|---|
| $1,000 | 7.95% | $250 | ~20 years |
| $1,000 | 7.95% | $500 | ~14 years |
| $1,000 | 7.95% | $750 | 10-11 years |
| $1,000 | 7.95% | $1,000 | 8-9 years |
This is insane.
Without having to worry about doing tonnes of research on ‘the best growth stocks’ and ‘the best dividend stocks’ – no worrying about researching funds and what sort of bonds you should go for, the best returns are actually through a simple tracker!
By investing $1,000 a month for 8-9 years, you’ll have enough invested to generate you $1,000 a month in returns!