How College Grads Can Retire as Millionaires for $50 Per Month

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Millions of college students are graduating from college this month and will soon enter the full-time workforce, if they have not already. Thus, this is not only an exciting time for these graduates but also one potentially marked by anxiety.

It can be somewhat overwhelming to find a job and housing and leave the nest. While there are a lot of hard decisions to make, one that’s a no-brainer is to start investing for retirement now.

The idea of thinking about retirement when you haven’t started working full time yet or even if you have just started may sound crazy to some. However, starting early is the single, most-important way to retire wealthy and comfortable — no matter how much money you make.

Time is your best ally

Far too often, people don’t get serious about investing for retirement until they are in their 30s or 40s. Although it’s better to start late than never, when you put off planning for retirement, you’re just playing catch-up.

When you need to play catch-up on saving for retirement, you may have to invest more than you can afford. Additionally, you may even end up taking on more investing risk than you should.

On the other hand, when you start saving and investing right out of college, you have the two biggest allies on your side: time and the power of compounding. With more time and the power of compounding, investing becomes a lot easier, less risky and a lot cheaper.

In fact, the more time you have, the less you have to invest per month. If you start early enough, you may only need to set aside $50 per month to be able to retire as a millionaire.

Retire as a millionaire

If that sounds like hyperbole, just do the math. Let’s look at two scenarios: one where you start investing at age 22 and one where you start at 32.

If you are 22 years old and fresh out of college, the best decision you can make is to invest in an exchange-traded fund. An ETF is a basket of stocks, and many of them track major indexes.

Thus, instead of trying to pick a handful of winning stocks yourself, you are buying shares in a single investment that owns shares of all of the stocks in a major index like the S&P 500 or Nasdaq 100, for example.

At age 22, I would pick a Nasdaq ETF, namely, the Invesco QQQ (NASDAQ:QQQ) ETF, which tracks the tech-stock-heavy Nasdaq 100. While the Nasdaq 100 may be more volatile in the short term, it has the best returns of any major index over the long term.

In fact, since the Nasdaq 100 launched in 1985, it has an average annualized return of 13.5% over the course of its 39-year track record.

If you went to Robinhood or some other online brokerage and invested $50 per month in the Invesco QQQ at age 22, and kept doing it for the next 43 years until you retire at 65, you would have $1.1 million from that one fund alone.

This total is based on the average annualized return of 13.5% put up by the Nasdaq 100 over the last 39 years. It also assumes you’re investing just $50 per month. You can also do the math yourself on one of the various free investment calculators that can be found online.

The power of compounding

To demonstrate the awesome power of compounding returns — which is essentially your money making money — let’s use the same inputs to see how much you would accumulate if you started at age 32.

After 33 years of investing $50 per month in the Invesco QQQ at the same annualized return of 13.5%, you would have just $306,000. Thus, by waiting 10 years to start investing, you would have almost $800,000 less by age 65.

If you waited to invest in this ETF until age 42, you would only have about $83,000 at age 65. That kind of says it all.

Keep in mind that this is just from a single ETF that you invest in outside of any 401(k) or IRA. If you work at a company with a 401(k), another no-brainer move is to invest in it immediately and get the full company match. If you do, you could easily be a multi-millionaire by age 65.

Thus, the most-important decision any recent college grad can make for their future right now is to start investing.