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Can You Retire a Millionaire With ETFs Alone?

By Katie Brockman - May 6, 2021 at 7:15AM

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They can be a great investment, but it depends on three factors.

Saving for retirement is tough enough, but it's even more challenging if your goal is to retire a millionaire.

To retire with at least $1 million in the bank, you'll need the right investing strategy. Exchange-traded funds (ETFs) are a fantastic option for many investors. Not only are they relatively affordable, but they also provide instant diversification and reduce your risk.

Is it possible to build a million-dollar portfolio solely with ETFs, though? That depends on a few factors.

Person holding hundred dollar bills against a yellow background

Image source: Getty Images.

1. How long do you have to save?

One of the most important factors to consider when saving for retirement is your investing timeline. The more time you have to let your investments grow, the more money you can potentially make. To retire a millionaire, you'll need at least a couple of decades to prepare.

Say, for instance, you're investing in a variety of ETFs that are earning an average rate of return of 8% per year. This means that while your investments may experience good and bad years, their returns will average out to around 8% per year over the long run.

If you have 35 years left to save, you'll need to invest around $500 per month to reach $1 million in savings. But if you only had, say, 20 years to save, you'd have to invest a whopping $1,900 per month, all other factors remaining the same.

This doesn't mean it's impossible to retire a millionaire if you're off to a late start. But ETFs perform best when they have a long time to grow. So the longer your timeline, the better your chances of retiring a millionaire.

2. How aggressively are you investing?

Not all ETFs are created equal, and some are riskier than others. Investing in a niche ETF that only contains stocks from, say, the tech industry is very different than choosing an ETF that only includes bonds, for example.

More-aggressive ETFs often include higher-risk stocks or stocks from just one industry. While they're designed to earn higher returns, they also carry more risk. But conservative ETFs can be risky as well. In general, more-conservative ETFs have lower returns, which means you'll need to invest more per month to reach $1 million in savings.

Investing in S&P 500 ETFs or total stock market ETFs can be a smart way to balance risk and reward. These funds follow the market as a whole, making them relatively safe investments. At the same time, though, they normally earn higher returns than if you were to invest primarily in bonds and other conservative investments.

No matter which ETFs you choose, be sure you're considering your risk tolerance and your timeline. Investing too aggressively can put your money at risk, but investing too conservatively means it may take longer to reach your goal. Finding a balance is key to retiring a millionaire.

3. Are you able to stay invested for the long term?

Investing is a long-term strategy, and to reach $1 million, you'll need to continue investing on a regular basis for decades. In addition, it's important to avoid taking your money out of the stock market if at all possible.

Before you invest anything, be sure your bills are paid and you have a solid emergency fund. The last thing you want is to invest every last dime and then be forced to withdraw it later down the road when money is tight.

Again, the more time your ETFs have to grow, the more money you can potentially make. If you repeatedly withdraw your investments to pay the bills or cover emergency expenses, it will be more difficult to reach $1 million in savings.

ETFs can be a fantastic option, and it's possible to retire a millionaire with this type of investment. You'll need a strategy in place, but building a million-dollar portfolio is more achievable than you might think.

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