Investing in the stock market can be intimidating, but it's also a fantastic way to generate wealth. You also don't need to be an experienced investor to succeed in the stock market, and sometimes the most low-maintenance investments can earn you the most money.
If you're just getting started in the stock market, there's one investment, in particular, that could be a great fit for your portfolio. And with the right strategy, you could go from $0 to millionaire.
Balancing risk and reward
Exchange-traded funds (ETFs) can be a smart option for investors who want a hands-off type of investment. Each ETF may contain dozens or hundreds of stocks, creating instant diversification within a single fund -- and you never need to worry about choosing individual stocks.
Although there are countless ETFs to choose from, one great choice is the Vanguard S&P 500 ETF (NYSEMKT:VOO). The fund includes all the stocks within the S&P 500 index itself, or roughly 500 stocks from the largest and strongest companies in the U.S.
One of the biggest advantages of this fund is that it's a relatively low-risk investment. While this ETF, like all investments, can experience short-term volatility, it's more likely to earn positive returns over time.
The S&P 500 has a long history, and it's experienced many market crashes and corrections over the years. However, it's been able to recover from all of its downturns.
While past performance doesn't predict future returns, there's a good chance it will continue to thrive despite volatility. And because the Vanguard S&P 500 ETF tracks the index itself, it's very likely that your investment will earn positive returns over the long run as well.
How much can you earn with this ETF?
Despite its lower levels of risk, S&P 500 ETFs can earn substantial returns. Since its inception in 2010, the Vanguard S&P 500 ETF has earned an average rate of return of nearly 16% per year.
Because the stock market has been experiencing an incredible bull market over the past decade, returns that high may be unlikely over the long run. The S&P 500 itself has historically earned average returns of around 10% per year, which is more realistic. While you may not earn 10% returns each and every year, the highs and lows should average out to roughly 10% over time.
Even earning average returns, it's still possible to become a millionaire with this type of investment. Assuming you're earning a 10% average annual return on your investments, here's what it would take to accumulate $1 million, depending on how much you can afford to save each month and the number of years you invest.
|Number of Years||Amount Invested per Month||Total Savings|
By investing consistently and staying invested for the long haul, you can earn a substantial amount in the stock market. And the more time you have to let your money grow, the less you'll need to invest each month to become a millionaire.
It's never too late to get started investing. Even if you don't have a dime saved so far, it's still possible to reach millionaire status someday with the right investments.