Most of us would love to retire as millionaires -- and many of us who are aiming for a certain degree of comfort in retirement will need to retire as millionaires. After all, money tends to be worth less in the future, due to inflation. If you're retiring in, say, 30 years, with a million dollars, it may only have the purchasing power of $500,000 today.
So how should you invest to get to that million dollars (or more)? Well, it's hard to beat the stock market, of course, but you don't have to become a fancy stock analyst able to spot stocks that will be exploding in value shortly. You can reach millionairehood with a simple index fund that tracks the S&P 500.
Image source: Getty Images.
What's the S&P 500?
The Standard & Poor's 500 is a stock market index containing 500 of America's biggest and best companies. There are thousands of stocks out there, but these 500 are so big that together they make up about 80% of the overall stock market's total value.
The index is market-capitalization-weighted, meaning that the biggest companies in it will count much more than the smallest companies. Here are the recent top 10 companies in the S&P 500:
|
Company |
Weight |
|---|---|
|
Apple |
6.73% |
|
Microsoft |
5.49% |
|
Alphabet |
3.27% |
|
Amazon.com |
2.66% |
|
Berkshire Hathaway |
1.66% |
|
Tesla |
1.55% |
|
UnitedHealth Group |
1.45% |
|
ExxonMobil |
1.41% |
|
Johnson & Johnson |
1.35% |
|
Nvidia |
1.22% |
|
JPMorgan Chase |
1.18% |
Source: Slickcharts.com.
How to become a millionaire
The stock market has grown by an annual average of close to 10% over very long periods, but it might average a higher or lower growth rate over the period in which you invest. So check out the table below, which shows how you might amass a million dollars or more simply investing in something that grows at a somewhat more conservative rate -- 8% -- annually:
|
Growing at 8% for |
$7,000 invested annually |
$15,000 invested annually |
|---|---|---|
|
5 years |
$44,351 |
$95,039 |
|
10 years |
$109,518 |
$234,682 |
|
15 years |
$205,270 |
$439,864 |
|
20 years |
$345,960 |
$741,344 |
|
25 years |
$552,681 |
$1,184,316 |
|
30 years |
$856,421 |
$1,835,188 |
|
35 years |
$1,302,715 |
$2,791,532 |
|
40 years |
$1,958,467 |
$4,196,716 |
Source: Calculations by author.
Clearly, great wealth creation is possible, but you do need a few things:
- Meaningful sums invested regularly
- Ample time
- An effective growth rate, such as that from the S&P 500
Investing in the S&P 500
How can you invest in the S&P 500 then? Well, via a simple, low-fee index fund. Various index funds track various indexes, and many of them track the S&P 500 index. Here are a few:
- Vanguard S&P 500 ETF (VOO -0.23%)
- iShares Core S&P 500 ETF (IVV -0.23%)
- SPDR S&P 500 ETF Trust (SPY -0.21%)
- Vanguard 500 Index Admiral Fund (NASDAQMUTFUND: VFIAX)
- Fidelity 500 Index Fund (NASDAQMUTFUND: FXAIX)
- Schwab S&P 500 Index Fund (NASDAQMUTFUND: SWPPX)
There's a good chance one of these is available in your workplace's 401(k) plan, but you can also invest in them via a regular brokerage account or perhaps via the mutual fund company itself.
So don't ignore the S&P 500, because it has the power to make you much wealthier -- and fairly easily, too!
