People invest for all sorts of reasons. Often it's for retirement, to cover a child's college expenses, or to achieve some other major long-term goal. For some, that might be a trip around the world, buying a summer house on the water, or acquiring a yacht to enjoy the good life. All are achievable with some long-term planning and a sound investment strategy.
Here's how starting with an investment of just $500 right now could help get you on your boat in that not-too-distant future grooving to some yacht rock.
What a Fool Believes
We like to call ourselves Fools around here -- it's a term of endearment, as the Motley Fool's goal is to help people get smarter, happier, and richer -- and have some fun along their investing journeys. If one destination you have in mind for your journey involves buying a yacht, it would be a good idea to set up an account specifically for that goal, as opposed to tapping into accounts you may have opened to save for retirement or some other long-term goal.
Among the great options for assets to include in that dedicated account are exchange-traded funds, or ETFs. These invest in baskets of stocks, so they provide more diversification than you could easily achieve by building a portfolio of individual stocks. And, with thousands of ETFs on the market with a wide array of portfolio compositions, you can decide how aggressive or conservative you want to be.
An ETF that invests in, for example, the Nasdaq 100, is likely going a more aggressive play than an all-market ETF that invests in thousands of stocks. Its returns are likely to be higher over the long term, but it will be a riskier bet, too. If the time horizon before you'll need to withdraw your money is shorter, you may want to opt for the safety of a broader market ETF.
How Much I Feel
Even a smaller yacht -- often referred to as a cabin cruiser -- is going to be priced in the $100,000 to $300,000 range. Costs can range much higher, depending on the boat's size, so you'll want to build your investment strategy with a number in mind. (Also, you'll want to factor in maintenance -- as a rough estimate, figure that will run you annually about 10% of your purchase price.)
If you are 45 years old and plan to spend that first day of your retirement wasting away in Margaritaville, that means you have about 20 years to get there.
If you invested $500 now in a growth-oriented ETF like, for example, the Vanguard Information Technology ETF (NYSEMKT:VGT), you could get on your way to that goal with a disciplined strategy. That particular ETF tracks the MSCI USA IMI Information Technology Index, which includes about 350 IT stocks from across the market-cap spectrum. Its three largest holdings are Apple, Microsoft, and Nvidia. The Vanguard Information Technology ETF has produced an average annual return of 21.6% over the past 10 years through June 30. Since the fund's inception in January 2004, it has posted an annualized return of 13.6%.
For this hypothetical, let's say you invest $500 in this ETF or a similar ETF now and add $150 per month for the next 20 years. With an average annual return of 14%, those investments would turn into around $171,000 in 20 years. Or it could take closer to 25 years with the more conservative 10% average annual returns of the S&P 500.
Of course, you must take into account inflation, but with nearly $200,000 amassed in your account, you'd certainly have enough to put a significant down payment on a yacht or to buy a nifty 30-foot cruiser outright.
Then all you'd have to do is fire up the engines, crank the tunes, and steal away into the night.