From Coffee Money to $1.5 Million
"Kids these days spend too much money on Starbucks lattes and Chick-fil-A" —your grandparents, probably.
That line gets thrown around a lot, and sure, it's exaggerated; skipping Starbucks will not buy you a house next year. But small amounts can really drive significant change. Just $25 a week has the power to snowball into something huge. Now that your short-term savings are locked down and growing (and if they're not, go back to the first article in the Spending and Saving series), it's time to think bigger. Not just this month or this year, but decades. It's time to unleash the long-term compounding machine.
What the heck is investing?
I own Apple. That means every iPhone you buy? I get a tiny cut. Same with your Starbucks concoction, since I own them too, along with hundreds of other iconic American companies.
Here's the deal: I don't have to run Apple's day-to-day operations to be an owner. I own shares, which are tiny pieces of the company. Investing means I provide money—capital—to a company, and in return I get a claim on its profits and assets. Stocks aren't just numbers on a screen; they're ownership in real businesses. Whether you own one share of Apple or a million, you're still an Apple owner. And let's clear this up right now: investing isn't gambling. Gambling is betting on chance with the odds stacked against you. Investing is owning productive assets that generate profits over time. Casinos will take your money, while great companies will make you money.
And yes, you can invest. You don't need to be a finance-bro, Patagonia-vest-wearing Wall Street analyst researching companies 25 hours a day to benefit from corporate profits. Instead, you can use indexing: buying a fund that automatically invests in all the companies in a market index, like the S&P 500, which tracks 500 of the largest publicly traded U.S. companies by market size and other criteria. That way, you get instant diversification by spreading your money across many different investments, so you are not dependent on a single company or industry. You own a mix—like the 500 companies in the S&P 500—so if one struggles, the others can balance it out. That way, you can leave the stress of trying to pick winners and dealing with losers to full-time professionals.
Investing in an index means buying a single ETF (an exchange-traded fund, which is just a bundle of stocks you can buy all at once like a single stock), instantly making you a partial shareholder of 500 amazing businesses generating profits for their owners—you included. You don't need thousands to start. Anyone with 25 bucks and a phone with internet can begin. And yes, you can, and should, start as early as possible; even broke college students eating last night's pizza as leftovers for breakfast.
The 25-500 Plan
Over the next several weeks, we'll break down how to turn your macchiato into millions, one week at a time. We'll cover why the S&P 500 works, how compounding turns dollars into thousands, and exactly how to put this plan into action. Investing $25 a week in the S&P 500, the inspiration for this plan's name, can yield over $850,000 if you retire at 65 and more than $1.4 million if you retire at 70! All from contributions of $54,000 and $65,000, which amounts to just $1,300 per year. Compounding occurs when your money earns a return, and those returns start earning returns of their own. It is profits stacked on top of profits, like a snowball rolling downhill. At first, the growth feels slow, almost invisible, but over the years and decades, the curve bends upward hard. That is why $25 a week for 50 years does not just add up to $65,000 in contributions. It can grow into more than $1.5 million.
Skipping your latte won't make you rich, but owning 500 profitable companies for decades could buy you more lattes than you could ever drink.
