Investing is a powerful tool for building wealth. It's probably easier than you think to retire a millionaire -- especially if you get started early.
All you need is a reliable exchange-traded fund (ETF) with low annual expenses, some starting capital, a firm commitment to adding more cash over time, and just enough luck to match the ETF's average returns in the long term. Oh, and a few decades of your time. That's all.
Read on, and I'll show you how long it would take to reach the million-dollar pinnacle with a couple of top-quality ETFs from Vanguard. These index funds come with minimal fees and impressive long-term returns. The slow and steady investing spirit of Vanguard founder John Bogle will serve you well over the years.
Charting your path to $1 million with Vanguard ETFs
I probably don't know you personally, and I most certainly don't know much about your financial situation. With that in mind, here's what I can do for you.
|
Vanguard ETF |
Compound Annual Growth Rate of Total Returns, Since Inception |
Launch Date |
Annual Expense Ratio |
|---|---|---|---|
|
Vanguard Information Technology ETF (VGT +0.11%) |
12.4% |
Jan. 26, 2004 |
0.10% |
|
Vanguard Mega Cap Growth ETF (MGK +0.08%) |
11.5% |
Dec. 17, 2007 |
0.07% |
|
Vanguard S&P 500 ETF (VOO -0.43%) |
13.4% |
Sept. 7, 2010 |
0.03% |
Data sources: Vanguard and YCharts on August 23, 2023.
Higher average rewards also come with higher potential risks, and no investment is guaranteed to maintain a steady return forever. The best performers of years past may also turn more volatile in a challenging market and deliver disappointing returns from time to time. Therefore, you should pick a Vanguard ETF that matches your appetite for risk and your targeted results.
The ultra-steady S&P 500 fund can get the job done for people with a long investing timeline. You might get there faster with the tech-focused index trackers, which have shown colossal returns in recent years -- with the caveat that they are more likely to run into occasional slowdowns this way. For example, the Mega Cap ETF and Information Technology ETF have pulverized the S&P 500's results over the last decade. Ranging from 15% to 20% per year, these recent results are so strong that I don't feel comfortable using them as reasonable long-term average targets in my calculations:
MGK Total Return Level data by YCharts
Feel free to adjust the figures I'm using below until they show what you can afford to invest. I'll show you the numbers in two different strategies for three Vanguard ETFs.
The target value will always be $1 million. In one model, you'll start from zero dollars and add $200 per month. In the other, you put $20,000 into the chosen ETF and leave it untouched. Both models will assume that you set up a dividend reinvestment plan, which automatically reinvests dividend payouts into more shares of the same ETF.
And in the end, I'll tell you how long it took to reach $1 million in each case. This way, you'll get an idea how much market risk you must accept in order to reach the million-dollar goal in the time you have left before retirement.
All that being said, let's look at the numbers in chronological order.
NYSEMKT: VGT
Key Data Points
Vanguard Information Technology ETF: 12.4% CAGR
The information technology tracker has been around for almost two decades. Vanguard rates it an aggressive fund, warning prospective investors that it exposes your portfolio to unusually large price fluctuations.
It matches the MSCI US Investable Market Information Technology 25/50 Index. This, in turn, is a market index managed by MSCI, tracking the returns of American information technology stocks. The index is rebalanced quarterly, triggering identical changes to the holding in Vanguard's ETF.
The three largest components, as of the July 31 update, are iPhone maker Apple, software giant Microsoft, and semiconductor designer Nvidia. Together, these three stocks account for 47.4% of this cap-weighted index's value. The ETF currently manages a portfolio of 323 stocks.
On a dividend-adjusted total return basis, this ETF has delivered a compound annual growth rate (CAGR) of 12.4% since its inception in 2004. Over the last decade, the CAGR spiked all the way to 19.7%. It is generally not safe to assume that overheated annual returns of that caliber can continue for the foreseeable future, which is why I'll work with the more modest all-time average instead.
|
Starting Investment |
Monthly Investment |
Years |
Total Cash Investment |
Final Balance |
|---|---|---|---|---|
|
$20,000 |
$0 |
32 |
$20,000 |
$1,036,258 |
|
$0 |
$200 |
33 |
$79,200 |
$1,115,143 |
Data calculated on Aug. 23, 2023, using an online tool from NerdWallet and average return data from YCharts.
NYSEMKT: MGK
Key Data Points
Vanguard Mega Cap Growth ETF: 11.5% CAGR
The mega cap growth ETF is classified as moderate to aggressive. It's a little bit younger than its information technology cousin, and it tracks a smaller basket of 96 stocks.
This one tracks the CRSP US Mega Cap Growth index, which is managed by the Center for Research in Security Prices -- a subsidiary of the University of Chicago. The index manager sorts stocks into different size classes and also classifies each ticker as either a growth stock or a value stock. In this case, the Vanguard ETF follows the CRSP index for mega-cap growth stocks, with the smallest market cap clocking in at $10 billion.
Rebalanced on a quarterly basis, the mega-cap growth index also counted Apple and Microsoft among its largest holdings as of June 30. Online services titan Alphabet snagged the third place, pushing Nvidia further down the list. The trio at the top add up to 37.67% of the total index weight.
|
Starting Investment |
Monthly Investment |
Years |
Total Cash Investment |
Final Balance |
|---|---|---|---|---|
|
$20,000 |
$0 |
35 |
$20,000 |
$1,098,354 |
|
$0 |
$200 |
34 |
$81,600 |
$1,001,292 |
Data calculated on Aug. 23, 2023, using an online tool from NerdWallet and average return data from YCharts.
NYSEMKT: VOO
Key Data Points
Vanguard S&P 500 ETF: 13.4% CAGR
The largest and most robust ETF in my study also clocked the strongest annual returns. It should be noted that it's also the youngest asset of the bunch, even though the index has been around since 1957. It falls under the same risk rating as the mega- cap ETF, classified as moderate to aggressive.
This exchange-traded fund mirrors the returns of its namesake market index, which many investors see as a fair barometer for the stock market as a whole. Managed by S&P Global, the S&P 500 includes 503 stock tickers representing 500 companies. The names are selected each quarter, representing the 500 largest U.S. businesses as measured by market cap and meeting a couple of additional criteria.
As expected, Apple and Microsoft also top the June 30 version of this list. There's another new name in third place, as e-commerce and cloud computing expert Amazon grabs a seat. Nvidia is No. 4 in this case, followed by Alphabet -- all familiar faces, shuffled in a different order. Here, the top three of a 503-ticker ranking list account for just 17.2% of the overall index weight.
|
Starting Investment |
Monthly Investment |
Years |
Total Cash Investment |
Final Balance |
|---|---|---|---|---|
|
$20,000 |
$0 |
30 |
$20,000 |
$1,089,477 |
|
$0 |
$200 |
31 |
$74,400 |
$1,096,814 |
Data calculated on Aug. 23, 2023, using an online tool from NerdWallet and average return data from YCharts.
Pick your million-dollar path
Whether you've got a bundle to invest right off the bat or a consistent trickle to add over time, there's a strategy to suit your pocket and your risk tolerance.
Fancy the adrenaline of tech with the Information Technology ETF? Prefer to spread your wings with the diverse Mega Cap Growth ETF? Or maybe the broad market appeal of the S&P 500 ETF is more your pace. Whatever your style, these ETFs offer a tried-and-true map to grow your investment. Just remember, the investment journey is a marathon, not a sprint.
