Though the stock market can be intimidating at times, it's one of the best ways to generate wealth. In fact, even if you can only afford to invest a little cash each month, it's possible to accumulate hundreds of thousands of dollars or more.
Becoming a stock market millionaire isn't always easy, but it's not as challenging as it may seem. With the right strategy -- and the right investments -- you could accumulate $1 million by investing just $200 per month. Here's how.
Choosing the right investments
There's no one-size-fits-all approach when it comes to choosing investments, as each individual will have unique preferences and tolerance for risk. However, one type of investment that could be well-suited to many investors is the S&P 500 exchange-traded fund (ETF).
An S&P 500 ETF is a fund that tracks the S&P 500 index itself, so it includes the same stocks as the index and aims to mirror its long-term performance. All 500 companies within the fund are some of the largest and strongest corporations in the U.S., including big names like Apple, Amazon, and Microsoft.
In addition, because this fund only includes corporations that are behemoths, it's more likely to survive stock market volatility. While it will still experience short-term dips, the S&P 500 has a decades-long history of recovering from even the worst crashes. While there are never any guarantees in investing, it's very likely an S&P 500 ETF will recover from future downturns, as well.
Building a million-dollar portfolio
Historically, the S&P 500 has earned an average rate of return of around 10% per year. This means that while you likely won't earn 10% returns each and every year, your annual returns should average out to around 10% per year over the course of decades.
To accumulate at least $1 million in savings, time is your most valuable resource. The more time you have to let your money grow, the less you'll need to invest each month.
Say, for example, you're investing $200 per month while earning a 10% average annual return. At that rate, you'd have $1 million in savings after around 40 years.
Don't have 40 years to invest? That's OK. By investing a little more each month, you can accumulate $1 million in less time. Here's how much it could take each month to become a stock market millionaire, assuming you're still earning a 10% average annual return.
|Number of Years||Amount Invested per Month||Total Savings|
The more time you have to invest, the easier it is to build a million-dollar portfolio. But that doesn't mean it's impossible if you're off to a late start.
Regardless of how much you can afford to invest, you're better off starting now rather than putting it off. Every year counts, and investing even a little right now could add up to more than you think over time. With the right strategy, you could be on your way to becoming a stock market millionaire.