How to invest a small guaranteed monthly income?
"In my opinion, you can't save too much for retirement. An extra $3120/yr invested at 8% for 30 years would give you $353K more at retirement.  If your ""good amount in my 401k"" is a hint that you don't want us to go in that direction, then how about saving for the child's college education? 15 years' savings, again at 8% will return $85K, which feels like a low number even in today's dollars, 15 years of college inflation and it won't be much at all.  Not sure why there's guilt around spending it. If one has no debt, good retirement savings level, and no pressing need to save for something else, enjoying one's money is an earned reward.  Even so, if you want a riskless 'investment' just prepay the mortgage. You'll see an effective return of the mortgage rate, 4%(?) or so, vs the .001% banks are paying. Of course, this creates a monthly windfall once the mortgage is paid off, but it buys you time to make this ultimate decision.  In the end, I'd respond that similar to Who can truly afford luxury cars?, one should produce a budget. I don't mean a set of constraints to limit spending in certain categories, but rather, a look back at where the money went last year and even the year before that. What will emerge are the things that are normal, the utility bills, tax bill, mortgage, etc, as well as the discretionary spending. If all your current saving is on track, the investment may be in experiences, not financial products."
A 401K (pre-tax or Roth) account or an IRA (Deductible or Roth) account is a retirement account. Which means you delay paying taxes now on your deposits, or you avoid paying taxes on your earnings later.  But a retirement account doesn't  perform any different than any other account year-to-year. Being a retirement account doesn't  dictate a type of investment. You can invest in a certificate of deposit that is guaranteed to make x% this year; or you can invest in stocks, bonds, mutual funds that infest in stocks or bonds. Those stocks and bonds can be growth focused, or income focused; they can be from large companies or small companies; US companies or international companies. Or whatever mix you want. The graph in your question shows that if you invest early in your adulthood, and keep investing, and you make the average return you should make more money than starting later. But a couple of notes:  So to your exact questions: An S&P 500 investment should perform exactly the same this year if it is in a 401K, IRA, or taxable account With a few exceptions:  Yes any investment can lose money. The last 6 months have been volatile and the last month and a half especially so. A retirement account isn't any different. An investment in mutual fund X in a retirement account is just as depressed a one in the same fund but from a taxable account. You can increase your monthly cash flow in two ways: It's really that simple. I'd even argue that to a certain extent, decreasing expenses can be more cash-positive than increasing income by the same amount if you're spending post-tax money because increasing income generally increases your taxes. So if you have a chunk of cash and you want to increase your cash flow, you could decrease debt (like Chris suggested) and it would have the same effect on your monthly cash flow. Or you could invest in something that pays a dividend or pays interest. There are many options other than real estate, including dividend-paying stocks or funds, CDs, bonds, etc. To get started you could open an account with any of the major brokerage firms and get suggestions from their financial professionals, usually for free. They'll help you look at the risk/reward aspects of various investments. Let's say I have $10,000, and I invest said monies in mutual fund   XXXXX at $100/share, effectively giving me 100 shares. Now, let's   assume at the end of the year I have a 5% return. My $10,000 is now   $10,500. At what point does my investment benefit from compounded interest?   Monthly? Quarter? Yearly? Does it even benefit? Daily would be my answer as your investment, unless you are selling shares or not re-investing distributions is getting the following day's change that impacts the overall return. Consider how if your fund went up 2% one day and then 2% another day from that $10,000 initial investment. The first gain brings it up to $10,200 and then the second makes it $10,402 where the extra $2 is from the compounding. The key though is that these are generally small movements that have to be multiplied together. Note also that if your fund goes up and down, you may end up down overall given how the returns compound. Consider that your $10,000 goes up 10% to $11,000 and then down 10% to result in $9,900 as the return for up x% and down x% is (1+x)(1-x)=1-x^2 which in this case is 1% as 10% of 10% is 1%. The key is how long do you keep all the money in there so that the next day is applied to that amount rather than resetting back to the initial investment. It is worth noting first that interest and short-term dividends/capital gains are all taxed at the same rate. So all the investments below I mention (even savings accounts) will be taxed at the same rate.  Also, even short-term capital losses can often be harvested to reduce your tax rate in many countries. While it is worth paying attention to the taxes when investing in the short term the more important factor is how much risk that you can take or want to take with the money.  Most equity portfolios like the S&P index give a much higher risk that there will be much less in the account when you need to buy.  You generally have a higher expected return with equity but as you mention that return is very random over such a short period. Over such a short variable period many people will invest in short term bond-index funds or just keep the fund in a high-yielding savings account.  With the savings account your money is guaranteed.  Short term bond funds will have generally higher yields but a small chance you may lose money in the short term. Some people can trade short-term bond indices for free with their broker but if you can't be sure to include the trading costs when thinking about which investment to use as with how low yields are currently the fees may eat up any advantage you gain. You have a couple of options: Auto-investing in an open-end mutual fund.  Some companies may waive a minimum if you sign up for an automatic investing, e.g. T. Rowe Price will waive its minimum if you agree to invest $100/month.  There may be some lower ones out there as well. Some brokers like ShareBuilder have programs where someone could auto-invest getting fractional shares with each purchase.  However, something to consider is what percentage is it costing you to buy each time as it may be quite a bit of friction if you are paying $4 a purchase and only buying $40, this is 10% of your investment being eaten up in costs that I'd highly advise taking the first option. I think the dividend fund may not be what youre looking for. You mentioned you want growth, not income. But I think of dividend stocks as income stocks, not growth. They pay a dividend because these are established companies that do not need to invest so much in capex anymore, so they return it to shareholders. In other words, they are past their growth phase. These are what you want to hold when you have a large nest egg, you are ready to retire, and just want to make a couple percent a year without having to worry as much about market fluctuations. The Russel ETF you mentioned and other small caps are I think what you are after. I recently made a post here about the difference between index funds and active funds. The difference is very small. That is, in any given year, many active ETFs will beat them, many wont. It depends entirely on the market conditions at the time. Under certain conditions the small caps will outperform the S&P, definitely. However, under other conditioned, such as global growth slowdown, they are typically the first to fall. Based on your comments, like how you mentioned you dont want to sell, I think index funds should make up a decent size portion of your portfolio. They are the safest bet, long term, for someone who just wants to buy and hold. Thats not to say they need be all. Do a mixture. Diversification is good. As time goes on dont be afraid to add bond ETFs either. This will protect you during downturns as bond prices typically rise under slow growth conditions (and sometimes even under normal conditions, like last year when TLT beat the S&P...) "You need to track all of your expenses first, inventarize all of your assets and liabilities, and set financial goals. For example, you need to know your average monthly expenses and exactly what percentages interest each loan charges, and you need to know what to save for (your children, retirement, large purchases, etc). Then you create an emergency fund: keep between 4 to 6 months worth of your monthly expenses in a savings account that you can readily access. Base the size of your emergency fund on your expenses rather than your salary. This also means its size changes over time, for example, it must increase once you have children. You then pay off your loans, starting with the loan charging the highest interest. You do this because e.g. paying off $X of a 7% loan is equivalent to investing $X and getting a guaranteed 7% return. The stock market does generally does not provide guarantees. Starting with the highest interest first is mathematically the most rewarding strategy in the long run. It is not a priori clear whether you should pay off all loans as fast as possible, particularly those with low interest rates, and the mortgage. You need to read up on the subject in order to make an informed decision, this would be too personal advice for us to give. After you've created that emergency fund, and paid of all high interest loans, you can consider investing in vessels that achieve your set financial goals. For example, since you are thinking of having children within five years, you might wish to save for college education. That implies immediately that you should pick an investment vessels that is available after 20 year or so and does not carry too much risk (e.g. perhaps bonds or deposits). These are a few basic advices, and I would recommend to look further on the internet and perhaps read a book on the topic of ""personal finance""." If you are looking to begin living off the money now, then Dheer's answer is correct - it is not possible. However, if you are looking to grow that money (and potentially additional money added at later dates), then you could make this work. 250 a month corresponds to 3000 per year. A first approximation is that you will need a diversified portfolio of 20-25x that amount (60k-75k) to get the required return. This approximation is based on the rule of thumb for how much life insurance to buy. Therefore you need to determine how to grow the 4k you currently have into 60-75k. These numbers, however, are not adjusted for inflation. In the US I would like put the long term inflation adjust diversified market return at 4% per year (your money doubles about every 18 years). So your best approach if you have time is a diversified portfolio with rebalancing and adding additional money each year.