Becoming a millionaire may seem like a matter of luck. How many stories have we heard in 2021 of people who made millions overnight from highly risky investments like Shiba Inu (SHIB 0.92%) and GameStop (GME 0.65%)?
But the overwhelming majority of folks who invest their way to millionaire status don't get lucky. They consistently put money in diversified, historically sound investments over the course of several decades. This disciplined approach can make you into a millionaire, even if you earn an average salary.
You don't need to be an expert stock picker or own a ton of investments to build a seven-figure nest egg. An exchange-traded fund (ETF) can make you an investor in hundreds of companies with a single purchase. If you want to retire a millionaire, the Vanguard S&P 500 ETF (VOO -0.18%) could be the perfect choice for you.
How Vanguard's S&P 500 can make you a millionaire
The Vanguard S&P 500 ETF is about as vanilla as you can get in investing. The ETF tracks the S&P 500 index, which is widely considered a proxy for the U.S. stock market. It represents more than 80% of the domestic stock market's value.
What's great about investing in S&P 500 index funds is that you automatically invest in 500 companies with a history of delivering profits. You'll become an investor in top companies like Microsoft (MSFT -0.42%), Apple (AAPL -0.40%), Amazon (AMZN -0.82%), Tesla (TSLA -1.37%), Johnson & Johnson (JNJ -0.96%), and Walmart (WM 0.81%).
With a single purchase, you can lock in the growth of the U.S. stock market. In any given year, your odds of earning positive returns are about 75%. But over longer stretches -- 20 years or more -- returns have always been positive. Historically, the index has delivered average annual returns of around 10%.
The Vanguard S&P 500 ETF has some of the lowest fees around. The ETF expense ratio is just 0.03%. What that means is that if you invested $10,000 in the fund, just $3 would go toward investment fees. The other $9,997 gets invested in the stock market.
How much do you need to invest to become a millionaire?
With any investment, the earlier you start, the less you'll need to invest. Here's how much you'd need to invest in Vanguard's S&P 500 ETF each month by age, assuming your goal is to become a millionaire by age 65. Bear in mind that these numbers don't factor in inflation, so you'd still need to gradually increase your monthly contribution to account for rising living costs.
|Starting age||Monthly investment|
Can the VOO beat the market?
No. The goal of investing in a fund like the Vanguard S&P 500 ETF is to track the performance of the benchmark index. As with any other S&P 500 index fund, you'd expect your returns to mirror those of the S&P 500, minus the fees. However, because Vanguard's fund has minimal investment costs, you can expect returns pretty much in line with the index.
The Vanguard S&P 500 ETF is a great backbone for your portfolio, since you can lock in the growth of the U.S. stock market. Then, you can layer on individual stocks and other investments if you want to achieve market-beating returns.