Amassing a $1 million investment portfolio may seem like it would require a lot of money and investing talent. The reality, however, is that many people could achieve this objective easily by taking two simple steps -- even without a ton of knowledge about how to pick stocks.
Wondering how to do it? Just complete these two tasks and you'll almost assuredly see your account hit seven figures.
Image source: Getty Images.
1. Invest $507 per month in an S&P index fund
The simplest and most surefire way to end up with a $1 million nest egg is to consistently invest in a reliable investment that provides predictable returns. An S&P 500 index fund fits the bill.
S&P 500 index funds are mutual funds or exchange-traded funds that track the performance of the S&P 500 financial index. Stocks that are in these funds are chosen automatically, based on the companies that make up the Standard and Poor's 500, which is an equity index that tracks the performance of 500 of the largest publicly traded U.S. companies.
S&P 500 index funds charge minimal fees. And over the long term, the S&P 500 has produced average annual returns around 10%. There's almost no research involved in choosing a fund, and there's little risk of losing money with a long-term investment because the funds provide instant diversification and have performed so consistently over the long term.
In other words, if you put enough money into an S&P index fund over time, you don't need to spend time researching investments, monitoring your portfolio, or tweaking your investing strategy. You'll likely become a millionaire with your portfolio on autopilot.
2. Wait 30 years
While the S&P 500 is likely to leave you with a seven-figure nest egg, it's going to take a long time to achieve this objective if you invest just $507 per month. That's because:
- The S&P 500 isn't going to beat the market. It's widely viewed as a barometer for the market, so it's pretty much impossible for it to beat the performance of the market as a whole over the long term. If you're hoping to earn huge returns and quickly amass wealth through investing, this isn't the approach for you.
- The S&P 500 isn't going to return 10% every year. This is a projection for the average annual return over time. In some years, you could end up with negative returns if the economy performs poorly and America's biggest businesses struggle. In other years, you may end up earning more than 10%. Trying to time the market to invest only at optimum times could mean missing out on some of the market's best days. To have the best chance of earning those 10% average returns that will make you a millionaire, you'll need to invest consistently over time and leave your investments alone for decades.
If you want to become a millionaire more quickly, you can do it with an S&P index fund -- you just need to invest more. For example, you can can likely hit your target within 20 years with a $1,455 monthly investment. The reason you'd need to invest so much more to achieve your objective a decade sooner is because you have less time for your money to work for you and earn returns that help your money grow.
The good news is, you simply must figure out your investing timeline to determine how much to put into an S&P index fund. Once you do that, if you follow through, your investment should help you achieve your millionaire goal.
