Building a portfolio worth $1 million or more isn't easy, but it's more attainable than it may seem. You don't need to be a stock market expert or have thousands of dollars to invest each month, but you will need the right strategy.
Exactly how much you'll need to invest each month will depend on two main factors: how much time you have to save, and where you choose to invest. Here's everything you need to know about reaching millionaire status by investing in the stock market.
Getting started now is key
Time is your most valuable asset when building wealth in the stock market. Thanks to compound growth, your money will build exponentially faster the longer it has to grow. You'll be earning returns on your entire account balance (not just the amount you invest), so the more your balance grows, the more you'll earn.
Image source: Getty Images.
Building a $1 million portfolio will generally take a few decades, unless you can afford to invest several thousand dollars per month. But every year counts, so even if you can't afford to invest much right now, it's better to get started anyway. You can always increase your savings later, but you can't get this time back.
Choosing the right investments
It's equally important to ensure you're investing in the right places. It can be tempting to opt for higher-risk short-term investments that promise to make you rich overnight, but you're far more likely to lose more than you gain.
A safer and more effective option is to invest in healthy stocks with the potential for long-term growth. These stocks may not earn explosive returns, but they are more likely to see consistent growth and recover from periods of market volatility.
There are seemingly endless stocks to choose from, but the strongest ones are from companies with solid underlying business fundamentals -- which can include everything from healthy financials to a competitive advantage in the industry to a competent leadership team.
If you'd prefer a more low-effort approach to investing, you may opt for an index fund or ETF. Each fund contains dozens or even hundreds of stocks bundled together into a single investment, taking much of the guesswork out of where to buy. While there are countless funds to choose from, an S&P 500 index fund or ETF is one of the safest and most popular options.
Generating $1 million or more
How long it will take and how much you'll need to invest monthly to reach $1 million will depend largely on the returns you're earning on your investments. Again, long-term investments may not experience explosive returns, but they're far more likely to make money consistently over time.
Historically, the market itself has earned an average rate of return of around 10% per year. This means that while you likely won't earn 10% returns each and every year, the highs and lows should average out to roughly 10% per year over decades.
If you're investing in very conservative stocks or funds, you may earn lower-than-average returns. On the other hand, it's possible to outperform the market considerably with a portfolio full of powerful (but healthy) stocks.
For simplicity's sake, let's assume your returns are in line with the market's historic average, and you're earning an average return of around 10% per year. At that rate, here's approximately how much you'd need to invest per month to reach $1 million 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: Author's calculations via investor.gov.
Again, every year counts when building wealth in the stock market, and putting off investing for even a few years could make it exponentially harder to reach $1 million or more. Regardless of how much you can afford to contribute right now, it's wise to get started investing whatever you can.
You don't need to be a stock market expert to build a million-dollar portfolio, but the right strategy is key. By getting started as soon as you can and investing in healthy long-term stocks, you'll be on your way to becoming a stock market millionaire.
