How a $5,000 Investment Could Turn Into $1 Million

Turning $5,000 into $1 million doesn’t necessarily require winning the lotto or getting lucky in Vegas. With a little patience and a big helping hand from compound interest, there’s a decent chance you can eventually transform a small amount of startup capital into a substantial sum by investing in stocks.

The Power of Compound Interest

Compound interest is interest applied not only to an initial amount invested or borrowed but also to the accumulated interest from previous periods. In the context of investing, this equates to earning interest on your interest.

Let’s look at a simple example. Suppose you deposit $5,000 into a savings account paying 3% APY that compounds daily. At the end of year one, your balance would be $5,152; after two years, that amount would have grown to $5,309; by year 10, you’d be sitting on $6,749, and by year 30, you would have accumulated $12,297, despite not depositing a cent more than $5,000.

This compounding process applies just as much to stocks but with typically far greater returns over time since the amounts involved are often higher. Instead of 2% to 5% gains, you might be talking about as much as 25% a year, the outsized gains the S&P 500 Index had in 2024.

Investing Example

Let’s say you invest an initial $5,000 in a stock, earning an annual return of 10%, about the historic average return for the S&P 500. Then, you use dollar-cost averaging (a complicated way of saying that you put the same amount aside periodically) and add $500 a month ($6,000 a year) to your investment from your paycheck.

 Here is what you’ll end up with over the following timelines (without accounting here and below for taxes and fees):

• 10 years: $115,957.70
• 20 years: $416,324.79
• 25 years: $723,701.43
• 29 years: $1,107,208.93

Obviously, the time it takes to reach $1 million depends on the size of the contributions. For example, if you didn’t want to invest anything after the initial $5,000, after 50 years, you’d still be about $273,000 short. Conversely, if you invested $800 a month rather than $500, you would reach the $1 million target in just 24 years.

The same logic applies to the rate of return each year. If it’s 8% instead of 10%, it would take about four more years to hit $1 million.

Examples

Let’s look at some real-life examples to clarify this point. We have a list of companies whose stocks you could have invested in, starting with $5,000 dollars and followed by $500 monthly. We calculated how long ago you would have needed to start investing to reach $1 million (using data from TradingView). We have assumed you’d have been a prudent investor—reinvesting your dividends to gain even more power from compounding over time.