Even small monthly investments can grow into tens of thousands of dollars.
By David Dierking â Aug 29, 2026
Key Points
Over the past 100 years, the S&P 500 has generated an average annual return of around 10%.
With those kinds of returns, even small investments can grow substantially over years.
Here’s exactly how much $100 a month could turn into over the next two decades.
A lot of people think it takes a lot of money to make money investing in the stock market. In reality, any investment can do the job. Even small monthly investments made consistently over the course of decades.
For many people, a simple $100 monthly investment in the S&P 500(^GSPC-0.25%) is achievable. It may not sound like much, but how large can your investment grow if you keep investing for 20 years?
Let’s do the math.
Source: Getty Images.
What $100 a month in the S&P 500 turns into
Historically, the S&P 500 has generated an average annual return of around 10% over the past century. While returns can fluctuate significantly in the short term, a 10% annual rate of return assumption gives us a good benchmark to work with.
Assuming an investor starts with nothing and consistently contributes $100 a month to something like the Vanguard S&P 500 ETF(VOO-0.21%), at a 10% average annual return, those investments would turn into roughly $76,000.
That means your total of $24,000 in contributions would have generated roughly $52,000 in investment gains. Once the snowball effect of those monthly investments accelerates, the majority of your returns come from compounding, not from the investments themselves.
Most people assume that the rate of return you see on your investments is the most important factor in how big your portfolio can become. There’s no question it’s a major catalyst, but it’s not the biggest one.
The ability to consistently contribute to your investment account is perhaps the most important thing for long-term wealth creation.
There will be times when the market declines, occasionally very significantly. But it’s the ability to continue investing through those times that could create the biggest benefit. That’s because in those situations, you’re buying shares at a discount. Taking advantage of those periods could actually improve your long-term returns over pausing your investments when the market gets rougher.
Short answer: DX (Dynex Capital) is a highâyield, highârisk mortgage REIT with a 15.4% dividend yield, extreme leverage, and improving earnings spreads, but still exposed to rateâcycle volatility. It is not a traditional property REIT â it is a leveraged bondâcarry vehicle. For income investors, DX is attractive only if you accept the volatility and the risk of dividend cuts.
đ DX â Full Investment Analysis (Grounded in latest data)
đ§ 1. What DXis
DX is an internally managed mortgage REIT (mREIT) investing in:
Agency RMBS (Fannie/Freddie)
Ginnie Mae MBS
CMBS
Interestâonly strips
It earns money from net interest spread, not rents. This makes DX behave more like a leveraged bond fund than a property REIT.
Source:
đ° 2. Dividend & Income Profile
Dividend yield:15.41%
Dividend: $2.04 annually, paid monthly
Payout ratio: 211% of GAAP operating cash flow (very high)
Dividend risk score: F
Years of dividend growth: 2
Source:
Interpretation: DXâs dividend is not safe. Mortgage REIT dividends move with interest spreads and leverage. DX has cut dividends in past rate cycles.
đ 3. Earnings & Spread Trends
DXâs Q2 2026 results show meaningful improvement:
EAD per share: $0.36 (+63.6% YoY)
Net interest spread:1.17%, up 21 bps YoY
Portfolio growth: +40% YoY
Coupons locked: 5â6% RMBS
Source:
Interpretation: DX is benefiting from stabilising rates and higherâcoupon MBS. This is the strongest operational improvement in several years.
âď¸ 4. Leverage & Balance Sheet
Leverage:8.1Ă equity
Debt/book capital: 88.55%
Net debt/EBITDA: 26.35Ă
Source:
Interpretation: DX is extremely leveraged â typical for mREITs, but still dangerous. Small spread changes = large earnings swings.
đ 5. Valuation & Returns
Price: ~$13
PE: 5.31
ROE: 13.74%
12âmonth return: +20.6%
10âyear CAGR: 6.97% (below S&P 500âs 13.49%)
Source:
Interpretation: DX is cheap on earnings but historically underperforms broad equities. Returns come mostly from dividends, not price appreciation.
𧨠6. Key Risks
Rate cycle risk (dominant)
DX is highly sensitive to:
Yield curve inversion
Rapid rate hikes
Spread compression
This is the single biggest determinant of dividend safety.
Dividend cut risk
Payout ratio >200% of GAAP OCF is unsustainable longâterm.
Leverage risk
8Ă leverage magnifies both gains and losses.
MBS market volatility
Agency MBS are safe from credit risk, but not from duration/hedging risk.
đ§ 7. Is DX a Buy?
UKâbased, incomeâfocused, analytical, and comfortable with REITs â hereâs the tailored view:
DX is a buyonly ifyou want:
Very high monthly income
Exposure to stabilising US rate spreads
A contrarian, highâyield mREIT with improving fundamentals
How to make yourself ÂŁ5,000 in passive income from stocks and shares
The Independent
Story by Alex Sebastian
28 AugÂ
Key takeaways
Dividend Basics: Dividends are periodic payments companies make to shareholders. The dividend yield is calculated as annual dividend á share price à 100. Consistency over years is key for reliable income.
High-Yield Stocks & Funds: Best options include asset managers, insurers, and REITs. For hands-off investing, consider equity income funds or ETFs, which provide managed portfolios of dividend-paying stocks with varying fees.
Growing Your Income: Start with spare money or lump sums, reinvest dividends (compounding) to increase holdings, and aim for long-term growth. Example: investing ÂŁ8,000/year at 5% yield could reach ÂŁ100,000 in under 10 years.
Passive income is the financial holy grail for many people.
The idea of making money in your sleep, while on the beach or engaging in your favourite hobby is highly appealing.
It is, of course, easier said than done. There is no shortage of people online claiming they can let you in on the secret to passive income, but the vast majority of these are scams, or active side hustles – entirely reputable, but where you need to do the legwork.
The stock market, however, offers arguably the most accessible, attainable and reliable route towards generating a passive income.
UK companies pay semi-annually in most cases, with the money split into an interim dividend and final dividend each year. Some companies pay once year, while in the US and other places, quarterly dividends are the norm.
The dividend yield of a stock is the percentage of its price that gets paid out in the dividend. To calculate it, you divided the companyâs annual dividend per share by its share price and multiply that by 100.
So, for a stock with ÂŁ5 per share dividend and ÂŁ100 price, the yield it pays is 5per cent.
The numbers will vary year to year, but if they are reasonably steady over time, or even increasing, that is what investors should be looking for.
It is crucial that the dividend has been consistently strong over several years. One good payout followed by a sharp fall is not going to get you far.
Which stocks pay the highest dividends?
Dividends yields vary significantly from company to company. They can be as high as a double-digit percentage on occasions, or as low as zero. Many companies use all the money they bring in to fund their operations and growth plans, rather than paying a dividend.
But there are also types of companies that tend to pay high, consistent dividends, which should form the basis of any effort to generate an income through picking stocks.
First and foremost are asset managers and insurers, particularly in the UK. These are often mature companies, with most of their growth behind them and relatively stable costs of doing business.
This means much of the money they make can be given to their shareholders. Legal & General has been the highest yielding FTSE 100 stock in recent years at around 7.6 per cent, while Aberdeen Group has yielded around 7.1 per cent, M&G in the 7 per cent range and Admiral at 6.4 per cent.
Investment trusts, particularly real estate investment trusts (REITs) are another good option. These are companies which have a sole focus on investing money in assets on behalf their shareholders.
What are equity income funds?
If you do not feel sufficiently knowledgeable or comfortable picking a portfolio of dividend yielding stocks yourself, then investing in an equity income fund, or exchanged-traded fund (ETF), is perhaps the way to go.
Equity income funds have fund managers and analysts identifying the best stocks to meet a target level of income. They will do all the work in finding the stocks most likely to provide a reliable income at the minimal level of risk needed to achieve this. This will of course come with a fee attached. These vary, but broadly land between 0.6 per cent and 1 per cent per year in most cases.
Top-performing equity income funds over the past three years include JOHCM UK Equity Income, TM Redwheel UK Equity Income and Man Income Fund. As always, past performance does not mean future performance will be the same.
The advantage over actively managed funds is a lower fee, typically in the region of 0.15 per cent to 0.4 per cent. Examples include iShares UK Dividend and Vanguard FTSE All-World High Dividend Yield.
How to generate a ÂŁ5k income from stocks
Clearly some spare money is required to start with, so generating an income from shares is not going to be for everyone, but it might be more achievable than many people think – and you certainly donât need thousands of pounds going spare to get started.
But being consistent could see you save several thousand pounds a year, and doing so over five to ten years would get you to a point where a meaningful amount of dividend income could then be generated.
Year after year, shares can compound to grow far bigger (Getty Images)
If you are fortunate enough to receive a lump sum from selling something, perhaps a work bonus or inheritance, that offers a great starting point and puts reaching passive income on fast forward.
Best of all, everyone can let compounding go to work to do the heavy lifting over time. Compounding sees you reinvest the dividends you receive back in the same shares (rather than receiving the cash) to increase how many shares you own. In turn, that means next time thereâs a dividend payout you get a larger amount – and so on, repeated year after year.
This requires deferred gratification, as you are sacrificing any income you could draw now to benefit from a much bigger passive income later down the line.
By way of a broad example, putting ÂŁ8,000 a year into a dividend fund yielding around 5 per cent which reinvests the dividends â known as the accumulation units of the fund – could get you reach a total of ÂŁ100,000 in under ten years, without considering any price gain to the shares. Share prices can also fall of course, particularly in the short term – but if your goal is accumulating shares thatâs actually not a problem when it comes to dividend payment time, as the same amount of money can compound into more shares than if the price was higher at that time.
Once you reach ÂŁ100,000 you could switch to what is called the income units of the funds you are using, instead of accumulation.
An alternative method would be to target higher growth funds at the start, which could reach your target several years earlier if they rose at an annual 7-8 per cent rate, for example, then switch to the dividend fund once you are either at your ÂŁ100,000 target or ready to start taking income.
With a yield of 5 per cent you would have ÂŁ5,000 a year paid out to you in passive income, plus still have the value of any continued rise in the prices of shares held by the fund – and if doing so inside an ISA, there would be no tax to pay on any of the gains.
When investing, your capital is at risk and you may get back less than invested. Past performance doesnât guarantee future results.
The SNOWBALL re-invests with a targeted yield of around 7%
Pair trading is where you split your capital either 50/50 or 60/40, depending on your risk profile, into a higher yielding thus risky share and a lower yielding share which should be less risky. As always expect the unexpected and it’s your duty to check any dividend annoucements.
Let’s pick a high yielding share from the list below to research, we will use brokers comments as a starting place.
AI
Short answer: REFI is not an obvious buy, but it is an unusually highâyield, highârisk niche REIT whose valuation now looks cheap only if you believe credit losses will stay contained and cannabisâsector regulation will improve.
Below is the decisionâready breakdown, grounded in the latest filings and market data you saw above. (Not financial advice â just analysis.)
𧊠What REFI actually is
Chicago Atlantic Real Estate Finance (REFI) is a commercial mortgage REIT that lends almost exclusively to cannabis operators who cannot access traditional bank financing. This niche gives REFI:
Very high loan yields (often 12â18%)
Very high credit risk
Regulatory uncertainty
Limited competition
đ Current valuation & yield
Share price: $10.67
Dividend yield:17.6% (extremely high)
P/E:7.8Ă (cheap vs mortgage REIT peers)
High yield + low P/E usually means the market expects credit losses or dividend cuts.
đ Latest financials (Q2 2026)
REFIâs Q2 numbers show stable but pressured performance:
Net income: $7.47m
EPS: $0.34 (down from prior quarters)
Dividend: $0.47 (again exceeding EPS)
Portfolio yield: still strong (fixed/floored loans)
Credit loss provision: small but rising
Key issue: REFI is not covering its dividend with earnings. That is the biggest red flag.
â ď¸ Risks you must weigh
1. Dividend sustainability risk (HIGH)
They are paying out more than they earn. This is the classic precursor to:
dividend cut
share price drop
reârating of the stock
2. Sector credit risk (HIGH)
Cannabis operators are:
capitalâstarved
often unprofitable
exposed to regulatory swings
prone to defaults
REFIâs filings show rising creditâloss provisions.
3. Regulatory overhang (MEDIUM)
Federal reform could:
massively help borrowers (good)
compress loan yields (bad)
REFI itself says 2026 could be âone of the more important periods in the history of the company.â Translation: big regulatory uncertainty.
4. Leverage rising
Longâterm debt has climbed from ~$98m to ~$140m in 2026. Higher leverage + stressed borrowers = more risk.
â Reasons someonemightbuy it
You want very high income and accept the risk of a dividend cut.
You believe cannabis regulation will improve.
You think credit losses will stay modest.
You like niche lenders with strong collateral discipline.
â Reasons someone would avoid it
Dividend not covered by earnings.
Borrower quality is fragile.
Rising credit provisions.
High leverage.
Sector is volatile and politically unpredictable.
Reliable dividends to date
Cannot be held in a UK ISA, so not a consideration for the SNOWBALL, especially as you may see your cash go up in smoke.
The above only for research not buy or sell advice. I have deleted the top ten yielding shares on a risk basis.
After due diligence, one or two could be bought as part of a pair trading strategy, where you split your capital between a high risk high yielder and a lower yield less risky Trust.
With high yielding shares you are most probably going to make a capital loss if you exclude the earned dividends.
Global income funds (whose top holdings we recently analysed) are one option, but so are portfolios with a more granular approach.
Here, we set out some of those names focused on a specific market that have made big recent payouts – and how the options available differ.
To give a rough sense of the dividends delivered, we have screened for the funds in a given region that would have paid out the most so far this year, had you invested a ÂŁ10,000 lump sum in late December 2025.
This is just a snapshot of how different funds have fared, but does give us a sense of whatâs on offer.
Asia and the emerging markets
The UK market is known for its impressive dividend yields, and itâs Asia and the emerging markets that have competed best on this front.
Plenty of funds offer chunky yields â and have also generated some stellar returns in the last year thanks to an artificial intelligence (AI)-led market rally.
If we look at those funds with higher payouts in 2026 we are immediately met with a familiar name.
stands out with a payout of almost ÂŁ780 â and certainly has a fanbase thanks to its almost 10% share price dividend yield.
The trustâs shares tend to trade on a small premium to net asset value (NAV) and itâs consistently among the most popular investment trusts among ii customers (as judged by real-time buys).
Note: Dividend payout is YTD in 2026, based on ÂŁ10,000 lump sum invested in late December 2025. Source: FE Analytics, 18/08/26. Past performance is not a guide to future performance.
As weâve written before, the trust is not without its failings.
It tends to lag its rivals in the Association of Investment Companies (AIC) Asia Pacific Equity Income sector pretty notably by total returns, meaning investors are sacrificing a good chunk of overall performance in the name of bigger dividends.
That figure came to around 34% for Aberdeen Asian Income, and to 34% for JPMorgan Asia Growth & Income (if at the end of July for the latter).
Note that different forms of income investing are on display here.
The JPMorgan trust uses an enhanced dividend policy, paying out a set proportion of NAV over a year and being less reliant on companies paying it dividends.
Meanwhile, both Schroder Asian Income Maximiser Z Inc (B52QVQ3) and Henderson Far East Income write covered call options, giving other investors the right to the gains on a stock above a certain price, for a fee.
That means they generate extra income but do sacrifice some capital gains in rising markets.
Note: Dividend payout is YTD in 2026, based on ÂŁ10,000 lump sum invested in late December 2025. Source: FE Analytics, 18/08/26. Past performance is not a guide to future performance.
Some AI momentum can be seen in the composition of this fund, with semiconductor stock ASML Holding NV
Note: Dividend payout is YTD in 2026, based on ÂŁ10,000 lump sum invested in late December 2025. Source: FE Analytics, 18/08/26. Past performance is not a guide to future performance.
It also uses BlackRockâs âSystematic Active Equityâ investment process, which in its own words âcombines human insight with the power of big data, machine learning and AIâ.
This process involves analysing vast amounts of data and seeking to exploit market inefficiencies and create a diversified portfolio.
In practice, the fund doesnât stray too far from its value-oriented benchmark and also has plenty of Magnificent Seven exposure.
Note, again, that the likes of income ETFs and âmaximiserâ funds do generate some income, if much less.
Japan
The Japanese market has continued to generate great returns this year but dividend generation still remains relatively modest, at least from the funds available to UK investors.
Note: Dividend payout is YTD in 2026, based on ÂŁ10,000 lump sum invested in late December 2025. Source: FE Analytics, 18/08/26. Past performance is not a guide to future performance.
The Independent
