There are never any guarantees in investing. However, there are investment strategies and stocks that have stood the test of time. A large reason -- and perhaps the main reason -- to invest is ensuring you're financially comfortable in retirement. And for a lot of people, this may require having at least $1 million saved up. Luckily, history has shown that one investment and time can get you well on your way there.
If you're looking to become a millionaire retiree, look no further than the Vanguard S&P 500 ETF (VOO 1.07%).
Let the S&P 500 lead you
The S&P 500 tracks 500 of the largest publicly traded American companies and is often considered a good way to gauge how well the overall U.S. economy is doing. While not perfect, large-cap index funds like those that track the S&P 500 should be a staple in investors' portfolios. When you invest in the S&P 500, you're getting exposure to top blue-chip stocks and receiving instant diversification.
The Vanguard S&P 500 ETF's top 10 holdings make up 29% of the fund and include companies like Apple, Tesla, and Johnson & Johnson. The top five sectors are information technology, healthcare, consumer discretionary, financials, and communication services, but the fund holds companies in any sector you can imagine.
Volatility is the one certainty in the stock market, and being exposed to many great companies across all industries can help hedge your portfolio during tough broader economic times and reduce some, but not all, risk.
Dollar-cost averaging and time
Getting to millionaire status isn't easy if you're trying to get there by strictly saving, but it's much more doable when you use dollar-cost averaging and let compound interest do most of the work for you. The good thing about dollar-cost averaging is that it helps prevent investors from trying to time the market because investments are made at regular intervals, regardless of stock prices at the time.
Assuming the Vanguard S&P 500 ETF returns 10% annually -- the long-term returns of the S&P 500 historically -- here roughly how much you would have at different monthly contributions in 30 years, accounting for the fund's 0.03% expense ratio:
|
Monthly Contributions |
Annual Return (Including Fees) | Account Value After 30 Years |
|---|---|---|
| $500 | 9.97% | $981,000 |
| $600 | 9.97% | $1.17 million |
| $750 | 9.97% | $1.47 million |
| $1,000 | 9.97% | $1.96 million |
Data source: author calculations
Even at $500 per month (equal to the $6,000 maximum IRA contribution limit for people younger than 50), you can almost accomplish $1 million while only personally contributing $180,000 over that span. Even upping the contributions by $50 monthly will put you over $1 million in 30 years. You don't need to be an extremely high earner to make this happen, either. If you're able to invest 10% to 20% of your monthly salary, someone making well under six figures can contribute the $600 monthly and likely reach millionaire status in 30 years.
Consistency wins the race
One of the best things you can do in investing is remain consistent and disciplined in your approach. Millionaires are rarely made overnight; they're generally made with time and compound interest. Short-term results will, of course, vary, but you should trust that an S&P 500 index fund like the Vanguard S&P 500 ETF can lead you to the promised land in the long run. The best thing you can do is remain consistent and let time work its magic.
