Investing in the stock market can be intimidating, but it's also one of the most effective ways to build wealth that lasts a lifetime. With the right strategy, you could potentially earn $1 million or more -- even if you're not a stock market guru.
There are two important steps to maximizing your earnings in the market: invest in the right places, and invest consistently for as long as possible. Here's exactly what it takes to reach $1 million or more.
Choosing the right investments
The investments you choose will make or break your portfolio. Invest in the wrong places, and you risk losing more than you gain.
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Opting for strong stocks from healthy companies is key to building long-term wealth. These types of companies will have solid underlying business fundamentals, such as good financials, a competent leadership team, and a competitive advantage in the industry.
Stocks with strong fundamentals will often still be affected by short-term market volatility. However, they're also far more likely to recover from downturns and go on to see positive long-term returns. The more of these stocks you have in your portfolio, the safer your money will be.
A simpler approach to choosing stocks
If you're willing to put in the effort to research stocks, you could potentially earn much higher-than-average returns over time. But not everyone has the time or interest to invest in individual stocks, and that's OK. In that case, an exchange-traded fund (ETF) could be a better fit.
An ETF is an investment that contains dozens or even hundreds of stocks bundled together into a single fund. When you invest in just one ETF, then, you're actually investing in many different stocks at once.
One of the safest and most reliable funds out there is the S&P 500 ETF. This type of investment tracks the S&P 500 index itself, and it contains roughly 500 stocks from the largest and strongest companies in the U.S. If you're looking for a low-effort investment that's almost guaranteed to earn positive returns over time, an S&P 500 ETF could be a good option.
Reaching $1 million or more
How much you'll need to invest each month to reach $1 million depends largely on where you invest and how the market performs, but it will generally take decades to build a substantial amount of wealth.
Again, long-term investments are the safest options. If you're investing in the right places, then, you shouldn't expect to become a millionaire overnight. But by investing a little each month and staying consistent over time, your savings will add up.
The market itself has earned an average rate of return of around 10% per year, meaning the annual highs and lows have averaged out to around 10% per year over decades. If you're investing in individual stocks, you could potentially earn much more than this. But for simplicity's sake, let's assume you're earning 10% average annual returns on your investments.
If you have a goal of reaching $1 million and are earning a 10% average annual return, here's approximately how much you'd need to invest each month depending on how much time you have:
| Number of Years | Amount Invested per Month | Total Portfolio Value |
|---|---|---|
| 20 | $1,500 | $1.031 million |
| 25 | $850 | $1.003 million |
| 30 | $525 | $1.036 million |
| 35 | $325 | $1.057 million |
| 40 | $200 | $1.062 million |
Data source: Author's calculations via investor.gov.
Time is incredibly valuable when investing, so the earlier you can start, the easier it will be to accumulate $1 million or more. Even if you can't afford to invest hundreds of dollars per month, getting started now can still help maximize your earnings over time.
Earning $1 million in the stock market isn't easy, but it is achievable if you have the right strategy. By choosing the right stocks, investing consistently, and keeping a long-term outlook, you'll be on your way to becoming a stock market millionaire.
