Retiring a millionaire may seem out of reach for many investors, but it's more attainable than you might think. In fact, you don't need to be a stock market expert or have a lot of money to build wealth through investing. What you do need, though, is the right investment.
Whether you're just getting started or looking for a simple way to strengthen your retirement savings, there's one ETF that could help you become a millionaire -- with next to no effort on your part.
Making money with an S&P 500 ETF
An S&P 500 ETF is a fund that tracks the S&P 500 index, meaning it includes the same stocks as the index and aims to mirror its performance. The S&P 500 contains stocks from 500 of the largest companies in the U.S. (including behemoth corporations like Amazon, Apple, and Tesla). When you invest in this ETF, you'll own a stake in all of these stocks.
This type of investment can be a smart option for a few reasons:
- It provides instant diversification: Because each ETF includes stocks from 500 companies from a wide variety of industries, you can instantly build a diversified portfolio with a single investment. This can limit your risk and better protect your savings.
- It's more likely to recover from downturns: All investments can take a hit in the short term during periods of volatility. But because the S&P 500 ETF includes stocks from some of the strongest companies in the world, this investment is far more likely to recover from market slumps.
- It has a long, successful track record: The S&P 500 itself has a decades-long track record of earning positive average returns. By holding this investment for the long term, it's extremely likely that you, too, will see positive returns over time.
- It's a low-maintenance investment: With an S&P 500 ETF, you never need to worry about choosing individual stocks or deciding when to buy or sell. All you have to do is invest consistently and let the fund do the rest.
The S&P 500 ETF thrives during periods of uncertainty. If you're nervous about investing during a bear market, this type of investment is a safer option.
Reaching millionaire status
There are several different S&P 500 ETFs to choose from. Some of the most popular options include the Vanguard S&P 500 ETF (VOO 0.87%), iShares Core S&P 500 ETF (IVV 0.92%), and SPDR S&P 500 ETF Trust (SPY 0.92%).
Historically, the S&P 500 has seen positive average returns of around 10% per year. This doesn't necessarily mean you'll see 10% returns each and every year. Rather, the annual highs and lows should average out to around 10% per year over time.
It's especially important, then, to maintain a long-term outlook with this type of investment. In the near term, your ETF could drop in value if stock prices fall. But over the long run, you're almost guaranteed to see positive average returns.
Those returns can add up substantially, too. Say, for example, you're aiming to save $1 million by retirement age, and you're investing in an S&P 500 ETF earning a 10% average annual return. Here's approximately how much you'd need to invest each month, depending on how many years you have left to save.
| Number of Years | Amount Invested per Month | Total Savings |
|---|---|---|
| 40 | $200 | $1.062 million |
| 35 | $325 | $1.057 million |
| 30 | $525 | $1.036 million |
| 25 | $850 | $1.003 million |
| 20 | $1,500 | $1.031 million |
Source: Calculations by author via Investor.gov.
The more time you give your money to grow, the less you'll need to invest each month to reach $1 million or more in savings. If possible, then, it's best to start investing sooner rather than later.
Becoming a stock market millionaire isn't easy, but it's possible. By investing in an S&P 500 ETF and holding your investments for as long as possible, you could earn more than you might think.
