It's possible to become a millionaire by investing in the stock market, and it's not as challenging as it may seem. It does, however, require the right strategy.
Choosing the right investments is critical, and it's equally important to invest consistently for as long as possible. But just how much do you need to invest each month to become a millionaire by your 50th birthday? It depends on a few factors.
Investing in the right places
To give yourself the best chance at reaching millionaire status, it's first important to choose the right investments.
High-risk, high-reward investments (like penny stocks or meme stocks, for example) can be tempting because it's possible to earn a lot of money in a relatively short period of time. However, they can also be incredibly dangerous, and there's a good chance you'll lose more than you gain over the long run.
A better option, then, is to buy stocks from strong companies and hold them for as long as possible. These investments may not earn explosive returns, but you're less likely to lose money over time.
S&P 500 exchange-traded funds, for example, may only earn average returns of around 10% per year. But the S&P 500 has a decades-long track record of surviving market crashes and economic downturns, so it's a safer bet than stocks from trendy new companies.
Consider your timeline
Next, think about how many years you have to save. Time is your most valuable resource when it comes to building wealth with the stock market, so the sooner you begin investing, the easier it will be to accumulate $1 million or more.
Of course, if you're off to a late start, there's no way to go back in time and begin investing earlier in life. But if you're trying to decide whether to start now or put it off for a year or two, it's better to begin now.
Say, for example, you want to accumulate $1 million by age 50, and your investments are earning an average rate of return of 10% per year. Here's how much you'd need to save each month to achieve that goal depending on your age.
|Age||Amount Saved per Month||Total Savings by Age 50|
The longer you wait to start investing, the more difficult it becomes to save a significant amount of money. So regardless of how much you can afford to invest, it's wise to start sooner rather than later.
What if you can't afford to invest this much?
Saving hundreds or thousands of dollars per month can be difficult or even impossible for many investors. But the good news is that there are ways to effortlessly boost your savings.
For example, if you have access to a 401(k) with matching contributions from your employer, you'll need to save substantially less to reach your goal. When your employer matches a portion of your savings every year, that's less money you'll need to invest out of pocket.
You can also boost your savings by making sure you're investing aggressively enough. While you don't want to invest in extremely risky stocks, it's also important to avoid being too conservative. If you're investing heavily in bonds, for example, you'll earn much lower returns than if you'd invested in stocks. Over time, those lower returns are going to make it much harder for your money to grow.
Finally, keep in mind that even if you can't save enough to become a millionaire by age 50, that doesn't mean you can't still accumulate a significant amount of money. Investing anything at all is always better than doing nothing. No matter how much you can afford to save, getting started investing now will pay off down the road.