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How S&P 500 Index Funds Can Make You a Millionaire

By Maurie Backman - Mar 7, 2021 at 7:36AM

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Want to strike it ultra-rich? Here's one easy path to get there.

When it comes to investing, you have options -- you can hand-pick individual stocks for your portfolio, or you can load up on index funds. Index funds are funds that aim to match the performance of the indexes they're tied to. S&P 500 index funds, for example, seek to mimic the performance of the S&P 500 itself. And they're also a good bet if your goal is to become a millionaire.

There are many types of index funds you can choose from, but the benefit of investing in S&P 500 index funds is that by doing so, you're effectively building a portfolio of the 500 largest publicly traded companies. The only difference is you're not going out and buying 500 different stocks one by one.

Man holding hundred-dollar bills

Image source: Getty Images.

One great thing about index funds is that they charge relatively low fees (whereas actively managed mutual funds, which employ fund managers to choose investments, charge higher fees). Furthermore, many index funds don't come with a minimum investment requirement (whereas actively managed funds often do).

Ready to get started?

So let's say you're interested in investing in index funds. Great! The question is, can they really make you a millionaire? And the answer is, if you invest enough money over a long enough period of time, absolutely.

The S&P 500 has historically delivered around a 9% average yearly return. Now, let's say you're willing to invest $300 a month in S&P 500 index funds. Here's how much wealth you might accumulate, depending on your savings window:

Save $300 a Month for This Many Years

Here's What You'll End Up With (Assumes an Average Annual 9% Return)

25 years

$305,000

30 years

$491,000

35 years

$776,000

40 years

$1.2 million

45 years

$1.9 million

Table and calculation by author.

As you can see, it's very possible to amass $1 million with S&P 500 index funds alone. The key, however, is to invest consistently and give yourself enough time to take advantage of compounded returns. Of course, if your investment window is narrower -- say you're already in your 40s and are only starting to invest now -- you can compensate by increasing the amount of money you invest each month.

For example, if your goal is to end up with $1 million in time for retirement, which you want to kick off at age 67, and you're 42 right now, investing $1,000 a month in S&P 500 index funds could make it possible to achieve that goal. If you're 52 with the same target retirement age, you can invest $3,000 a month in S&P 500 index funds and wind up with $1 million as well.

While there are a host of S&P 500 index funds you can choose from, here are a few good options worth looking at:

  • The Schwab S&P 500 Index Fund ( SWPPX ) has no investment minimum and some of the lowest fees you'll see out there
  • The Fidelity 500 Index Fund ( FXAIX ) used to have an investment minimum but that requirement was recently removed, making this low-cost fund accessible to more investors

Index funds are an easy way to grow wealth, and it pays to focus on S&P 500 funds in particular. Doing so could be your ticket to attaining millionaire status in your lifetime.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Schwab Capital Trust - Schwab S&P 500 Index Fund Stock Quote
Schwab Capital Trust - Schwab S&P 500 Index Fund
SWPPX
Fidelity Concord Street Trust - Fidelity 500 Index Fund Stock Quote
Fidelity Concord Street Trust - Fidelity 500 Index Fund
FXAIX

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