Reaching $1 million by investing in the stock market is a dream many people share, and it's more attainable than it may seem.
You don't need to be a stock market expert or invest thousands of dollars per month to become a millionaire, but you will need the right strategy. The investments you choose will have an enormous impact on how much you're able to accumulate, and the earlier you get started, the better.
Ready to start building wealth in the stock market? Here's exactly what it takes to reach $1 million or more.
Choosing the right investments
The first step is to decide where to invest. This will depend largely on your personal preferences and goals.
If you're willing to put in a little extra time and effort in exchange for potentially higher returns, individual stocks may be a smart option. You will need to research the companies you're interested in, keep up with industry trends, and ensure your portfolio is properly diversified. But that extra effort could result in far higher earnings, on average.
Just be sure that you're investing in quality companies with solid underlying fundamentals. Shaky businesses will have a tough time recovering from downturns, but if you're investing in healthy stocks, your investments will have a much better chance of seeing long-term growth.
Image source: Getty Images.
On the other hand, if you'd prefer a more hands-off investment that requires very little effort, an S&P 500 ETF or other index fund may be a better fit.
With this type of investment, all the stocks are already chosen for you. Each fund will have dozens or even hundreds of stocks bundled into a single investment, taking all the guesswork out of where to invest.
S&P 500-tracking funds, in particular, are also generally safer than individual stocks. However, they also tend to earn lower returns.
There's no right or wrong answer as to where you should invest. If you're willing to put in more effort and take on slightly more risk for the chance at higher returns, individual stocks may be your best bet. But if you'd like a safer, lower-maintenance option (even if it means earning lower returns), an S&P 500 ETF or index fund may be a better option.
How much to invest to reach $1 million or more
Of course, your actual earnings will depend on how the market performs. That said, it's still possible to get a rough estimate of how much you'll need to invest each month to reach millionaire status.
Regardless of where you invest, time is your greatest asset when building wealth in the stock market. Thanks to compound growth, your money will grow faster the more time it has to accumulate. It's wise, then, to get started investing sooner rather than later.
For simplicity's sake, let's assume you're investing in an S&P 500 ETF and earning a 10% average annual return -- which is in line with the market's historic average. At that rate, here's what you'd need to invest each month, depending on how many years you have to save:
| Number of Years | Amount Invested Per Month | Total Portfolio Value |
|---|---|---|
| 20 | $1,500 | $1.031 million |
| 25 | $900 | $1.062 million |
| 30 | $525 | $1.036 million |
| 35 | $325 | $1.057 million |
| 40 | $200 | $1.062 million |
Data source: Investor.gov. Chart by author.
Again, these figures assume you're earning returns in line with the market's historic average. If you've opted to invest in individual stocks and those stocks are performing well, you could potentially earn much more than this.
There's not necessarily a right or wrong way to invest, as your strategy will depend on your personal preferences. But by investing in the right places, getting started as early as possible, and keeping a long-term outlook, you'll be on your way to becoming a stock market millionaire.
