We all would love to wake up one day, check our brokerage accounts, and see the value of our investment top $1 million. The bad news is that this probably won't happen overnight. But the good news is that by investing wisely over the long term, this could happen over time.
And I have even more good news for you: You don't have to be an investing genius to win in the stock market. Instead, a few wise decisions and some patience may go a long way, helping you grow your investment significantly -- even past the million-dollar mark.
So, if your goal is to become a millionaire, you might be wondering if one of today's much-talked-about investments could help you get there. I'm talking about a good S&P 500 index fund, one that tracks the movements of this benchmark, replicating its gains or losses. One to consider is the SPDR S&P 500 ETF Trust (SPY +0.80%) -- is it a millionaire maker? Let's find out.
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Mirroring the S&P 500's performance
First, let's talk a little bit about the SPDR S&P 500 ETF. It includes the companies found in the index, at about the same weighting, so that it can reproduce the index's performance. Today, this means technology stocks are heavily weighted in the fund, with Microsoft, Nvidia, and Apple making up the biggest positions -- they're weighed from 6.2% to 7%.
That said, the index and index fund aren't a one-industry investment. Instead, they offer you broad exposure to a wide variety of companies, from healthcare to industrials. In fact, they include 11 sectors, and this offers you instant diversification as an investor. So, if one stock or industry suffers, others may compensate.
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The good thing about this is that it reduces your risk, but the one small downside is that it also limits gains. If Nvidia, for example, soars, you'll benefit more by directly owning Nvidia shares than by owning this index fund. This means that if you're a cautious investor you may prefer the index fund, but if you're an aggressive investor, you might also choose to invest in a basket of high-growth stocks -- to amplify your winnings if these shares take off.
Finally, the SPDR S&P 500 is ever evolving, meaning that as the S&P 500 adds new companies and removes others to reflect the current leaders, the fund also will make those adjustments. So, investing in this fund is also a way to continually bet on the companies powering the day's economy.
Now let's consider if you really could become a millionaire by investing in the SPDR S&P 500 ETF. The best way to do this is by imagining regular investment in the ETF, so that you can benefit from the magic of compounding.
Investing regularly over time
Over time, the index has generated a compound annual return of nearly 10%, so we'll use this for our calculations. If you make an initial investment in the fund of $5,000 and add $150 to that every month for 35 years, your investment may grow to more than $628,300. And if you doubled that monthly investment to $300, by the end of the period your investment could total more than $1.1 million, accomplishing your goal.
It's important to remember that this is just a simulation using past index performance as a guide, so returns could change. But this gives us a general idea and shows us that committing to an S&P 500 index fund investment over time could significantly grow your wealth and even possibly usher you into millionaire territory.
Of course, if you plan on investing over a shorter time frame, an investment in the SPDR S&P 500 ETF probably won't make you a millionaire (unless you invest a huge amount initially and monthly). But even regularly investing a small amount over, say, 10 years in the index fund still could be a valuable part of your wealth-growing strategy, paired with other investments.
All this means that the SPDR S&P 500 ETF, by allowing you to bet on many of the day's top companies, makes a solid and rather safe long-term investment. And in some cases, it could even pave the way to millions.
