Making money in the stock market doesn't have to be difficult or complicated. It can get that way, however, if you try to get too greedy or aggressive. If you're willing to stay the course and buy and hold investments that you're willing to be patient with, it's not impossible by any means to grow a $10,000 portfolio to $1 million or more by the time you retire.
Below, I'll show you how you can achieve that without even having to take on much risk, either, or worrying about which stocks to pick.
Why an exchange-traded fund makes the most sense for most investors
Investing can be intimidating because there are many stocks to choose from. Looking at tech giants like Amazon, Microsoft, and Apple, you might be thinking that it's hard to pick which one (or all) of those stocks you should buy. While you might want to own a dozen or more stocks in order to diversify, you may not have the time to track all those companies to see how they are doing and whether they are still good investments.
If you invest in an exchange-traded fund (ETF), you can get exposure to hundreds of different stocks -- even thousands -- through a single investment. This is why ETFs can drastically simplify your investing strategy. If you set up a goal to invest every month, you can put that money into the same ETF rather than going through a whole exercise every month of deciding which stock is the best buy at that precise moment.
One fund that should be near the top of all ETF buy lists is the Invesco QQQ Trust (QQQ 1.16%). It gives you exposure to the top 100 non-financial stocks on the Nasdaq. And the Nasdaq is where you want to be in the long run, because this exchange is where many of the best and brightest growth stocks end up. This includes Amazon, Microsoft, Apple, and many others. While you can invest in a broader-based S&P 500 index, the danger with diversifying too much is that you could end up sacrificing some gains for the added safety. And as long as you have an extended time horizon (e.g., 20-plus years), the Invesco QQQ Trust can be an excellent option.
NASDAQ: QQQ
Key Data Points
How $10,000 can grow to $1 million
Over the past 10 years, the Invesco QQQ Trust has generated total returns (which include dividends) of 450%. That averages out to a compound annual growth rate of 18.6%. The S&P 500's long-term average is around 10%. By focusing on the Nasdaq's top 100 stocks, you have the potential to generate far superior returns in the long run.
Let's assume, however, that over a much longer period of 20- or 30-plus years, the return from the Invesco QQQ Trust decreases from 18.6% to 15%. After all, stocks have been a bit hot lately, and gains are likely to cool down in the future. Yet 15% is still an extraordinary return even for Nasdaq growth stocks. Here's a look at how a $10,000 investment could increase over the years, assuming a 15% annual growth rate.
| Year | Investment Balance |
|---|---|
| 10 | $40,456 |
| 15 | $81,371 |
| 20 | $163,665 |
| 25 | $329,190 |
| 30 | $662,117 |
| 33 | $1,006,998 |
Calculations by author.
Due to the effects of compounding, there's a huge advantage in keeping your money invested. Between years 10 and 20, the portfolio balance in this example rose by approximately $123,000. But between years 30 and 33, with a much bigger balance, it increased by nearly $345,000. The power of compounding is what makes investing in growth-focused ETF a worthwhile option.
Staying invested is the key
If you watch stock market news, much of the hype these days is about what the Fed will do with respect to interest rates, and what impact that will have on stocks. If you're a long-term investor, the huge advantage you have is you can ignore all that as nothing but noise and developments that will only have an impact on the short term.
In many cases, the best option is to keep things simple. Invest in what you know, and if you aren't comfortable with any particular stock, buy a top ETF like the Invesco QQQ Trust. That's a better, safer way of growing your wealth over the years than trying to keep up with the latest business news every day.
