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How Much Money Do I Need to Invest to Make $1,000 a Month?

How Much Money Do I Need to Invest to Make $1,000 a Month?

Investing to be able to make $1,000 a month is a common goal for those who hope to bring in additional income. Commonly this income can be used to supplement employment income, pay bills or pay down debt, be used as income during retirement, or simply as leverage toward eventual financial independence. Many people wonder, however, just how much money will need to be invested before they can see a monthly income of at least $1,000.

Generally speaking, most investors will need to have a portfolio with an average value of about $400,000, depending on market conditions. The exact amount will depend greatly on the overall health of the market, as well as what specific types of investments are part of their portfolio.

While the general goal of $400,000 is great for those ready to get started, there is much more to consider than simply saving and investing. Not only will it be important to use the right types of investments to maintain a predictable rate of growth, but it's also incredibly important to diversify your investments as well to help insulate your portfolio from large market shifts. We're going to dive into just what investments you should be looking at, why it's important to invest instead of saving, and how you can best protect your investments as the year.

meeting bussines friendsInvesting vs. Saving

One of the biggest mistakes that aspiring financial independents and pre-retirees make is to confuse investment with savings. This can be a crucial distinction in whether or not the investor is ready to begin drawing on their investment or if they're going to be depleting savings that aren't actively making them money. This is a particularly important distinction in times of increased inflation.

When a consumer deposits money into a savings account, they are earning interest at a nearly non-existent rate, often well below 1% interest. For those who try to save any significant amount of money, leaving it in a savings account is one of the worst things that can happen to that money. Since the interest paid on most accounts, both savings and checking, is so low, the rate of inflation will outpace the interest. This means your money will suffer from inflationary decay while sitting in the account, leaving you constantly trying to save enough to make up that ground.

When money is wisely invested, that money will begin earning a far greater return than any existing savings or checking accounts. This is the key to eventually being able to have an investment portfolio that creates income for you, rather than simply being a place to store your funds.

Think of it this way, if you wanted to have a savings account with 20 years of retirement funds in it, $1,000 per month means you only need to save $240,000. The downside to this is that when you take your first $1,000 withdrawal, you're left with $239,000 accumulating interest at the rate of 0.06%, which is the national average for savings accounts at the time of writing. This means you're only earning about $140 in interest.

If you invest that same $240,000 in dividend funds, REITs, and high-yield bonds, you can likely create a modest return of 3% or more each quarter on those funds. Instead of only making $140 each quarter from savings interest, that money could be creating approximately $7,000. Keeping in mind that your return won't always be optimal, you're still coming out well ahead of inflation.

How Much Money Do I Need to Invest to Make $1,000 a Month?

It's generally accepted that for a diversified portfolio, an income of $1,000 a month can be achieved with about $400,000 invested. The exact amount will be highly dependent on the exact investments, their average return, and how long they are left to compound before the investor begins drawing on them.

One of the longstanding rules of thumb in financial planning is the 4% rule. This is a guideline that says with a half and half mix of stocks or other market funds and bonds, an investor will be able to withdraw 4% of their yearly portfolio value with inflation factored in and not run out of money during a 20-30 year retirement. At the same time, there are exceptions and limitations to the 4% rule, such as investors who want more diversification than simply stocks and bonds.

Investments That Can Create $1,000 A Month In Income

While it may seem a little daunting to get started with investing for retirement or financial independence, it's easier than it seems. Here are some actionable ways that many people can start investing today and begin building toward that $1,000 a month passive income goal.

Dividend Stocks & Funds

Stocks that pay dividends are one of the most popular ways to create monthly, quarterly, or annual income, and by staggering investments in various stocks or funds which distribute dividends at different times, an investor can likely create significant monthly income. Dividend stocks aren't the big movers that are often in the news, like Tesla or Facebook, but they do consist of well-known companies that regularly pay dividends to their investors.

The challenge is picking the right stocks, however, and failing that can leave your portfolio in shambles. This is why more and more investors are turning to ETFs that pay dividends. Managed dividend ETFs are actively managed by some of the most well-known names in investing, like Warren Buffet, which means you don't need to worry about "picking a winner"; you can just let proven investing masterminds do it for you while you enjoy the results.

Additional reading: What Happens if Robinhood Shuts Down? [FIND OUT HERE]


Most people don't have extra real estate that they can rent out for income, which is what makes REITs so great. Real Estate Investment Trusts, or REITs, are companies that own and manage varying types of real estate and offer other investors the opportunity to participate. Most REITs are traded publicly and are required by law to redistribute 90% of their annual income back to their investors. Some of the best equity REITs produce annual dividends of nearly 3%, while mortgage REITs have returns of over 8% in some cases.

High-Yield Bonds

Bond funds are great ways to begin building towards a $1,000 a month income, but as the potential yields increase, so does the risk inherent in the bond. This is because high-interest bonds are generally only used by companies that are more susceptible to credit risk.

One of the common ways to mitigate the risk associated with high-yield bonds is to invest in a high-yield bond ETF that is actively managed. ETFs are a great way for risk-averse investors to take advantage of the larger return while letting someone far more experienced make the decisions about the individual investments that the fund contains. Some of the returns for the most popular and well-performing bond ETFs start to approach 7%, which is a monumental return for an investment that's essentially on auto-pilot.

Private Lending

Private lending has some risk factors that put it well outside the limits of risk tolerance for many investors, but for those who capitalize on it effectively, it can be lucrative. Private lending involves lending money to borrowers with damaged or limited credit or other parties that are looking for creative or hard-to-obtain financing. These are borrowers who are not generally able to borrow the funds through conventional means.

Private lending is commonly used for personal loans as well as real estate investment. Those who lend privately receive regular payments toward the principal and the interest fees and the fees associated with loan origination, and even mortgage points if used for real estate.

work bussines investDiversification Is A Key Element To Creating Constant Income Through Investments

While you may find an investment that turns out to produce a significant return, don't focus too narrowly on that particular channel of investment. The market moves fast, and with all of your investments in one particular fund or venture, a strong market swing in the wrong direction can wipe you out.

Diversification can harden your portfolio against unforeseen market conditions, recession, and more. If you invested in mortgage REITs in the early 2000s, for example, and they went so well that you moved all of your investments there, the eventual housing market and lending crash of the late 2000s would have devastated your portfolio. This is a real-world example of why diversification is so vital to a healthy portfolio.

Understanding How Much You Need To Invest To Make $1,000 A Month

An extra $1,000 a month sounds like a great way to take a big step forward toward financial independence, but you'll need to know how to get there first. Now that you know how you can begin investing and in what, you will be in far better shape to start putting money away here and there so that you can reap the benefits in the future.

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