Inflation hasn't made it easy to save for retirement. But what if you tried to put aside just $50 every month into an exchange-traded fund (ETF)? Over a 30-year period, that would mean you have invested $18,000. And through the effects of compounding, your total investment would be worth much more than that.
Below, I'll look at how big your portfolio might get by adopting this strategy and investing money into diverse ETFs such as the SPDR S&P 500 ETF Trust (SPY -0.41%) or the Vanguard Growth Index Fund ETF (VUG -0.54%).
Your portfolio could grow by at least 10% per year by investing in these ETFs
Investing in ETFs can be a safe way to grow your portfolio's value over time. The S&P 500 ETF allows you to gain exposure to the broad market as it tracks the S&P 500, and it's a good way to mirror its overall gains.
In 20 years, the fund has generated total returns (which include dividends) of around 650%, which averages out to a compound annual growth rate (CAGR) of 10.6%. In comparison, the more growth-focused Vanguard fund has achieved returns of approximately 920%, for a CAGR of 12.3%.
What makes the Vanguard Growth fund potentially more attractive is that it focuses on the top U.S. growth stocks. This means you're benefiting from the growth that big names such as Apple, Eli Lilly, Visa, and many other top stocks generate.
The ETF contains 188 stocks, which means it isn't as diverse as the S&P 500, but by focusing primarily on the best-performing growth stocks, it can put you in a position to potentially outperform the markets in the long run.
How much could your portfolio be worth after 30 years?
There's no guarantee as to what kind of returns you might achieve by investing in these or any other ETFs. But let's assume that the S&P 500 will continue to average a long-run return of close to 10%. And by targeting growth stocks, you might be able to attain slightly higher returns. Below is a table showing what your $50 per month investment could turn into after 30 years, based on varying annual growth rates.
| Growth Rate | Portfolio Value |
|---|---|
| 10% | $113,024.40 |
| 11% | $140,225.99 |
| 12% | $174,748.21 |
| 13% | $218,663.49 |
| 14% | $274,648.55 |
| 15% | $346,163.98 |
Calculations by author.
Odds are, you aren't going to end up being a millionaire by investing $50 per month, even if you wildly outperform the market. But your portfolio value can grow significantly higher than the total $18,000 you would have invested over that time frame.
And by investing in diverse funds that give you access to many solid blue chip stocks, you can keep your risk low while bolstering your retirement fund in the process.
ETFs can make saving for retirement easy
Putting money into an ETF every month can be a better way to save for the long term than just letting the cash sit in a checking or savings account. As long as you're investing money that you might not need in the near future, it can be a good way to invest for retirement. You don't have to worry about picking individual stocks or about trends in the market -- strong and diverse ETFs can make the process a whole lot easier.
