What's the Best Investment Strategy to Retire a Multi-Millionaire?

The secret to retiring a multi-millionaire is quite simple. There is no easier way to accomplish this than by using a consistent dollar-cost averaging strategy. If you start investing early and use this investment strategy, your odds of retiring a multi-millionaire are extremely good.

Dollar-cost averaging is one of the simplest and most effective investing strategies out there. Instead of trying to time the market, you simply invest at regular intervals, regardless of where prices are.

By investing a fixed amount every month, or every paycheck, you'll buy more shares when prices are low and fewer shares when they're high. Over time, this will smooth out your cost basis and help protect you from big market swings. It's a disciplined approach that will keep you investing through both bull and bear markets.

Some of the best investment vehicles to use this strategy with are exchange-traded funds (ETFs). With ETFs, you can get an instant portfolio of stocks without doing a lot of research. ETFs are also very accessible. You can feel comfortable starting with a small amount -- the key is just investing consistently.

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With the power of compounding, dollar-cost averaging consistently into an ETF can help you retire a multi-millionaire. You also don't have to start with a large amount. If you are in your mid-twenties and have 40 years until retirement, a simple $500 investment each month can turn into a nearly $5 million nest egg by the time you hit retirement age with just a 12% average annual return.

If you're older, though, don't fret. A $1,000 investment each month at a 12% annual return can give you a $3 million portfolio after 30 years. However, the sooner you start, the better, as $1,000 each month for 40 years turns into nearly $10 million.

Let's look at five ETFs with strong track records that can help you retire a multi-millionaire.

Vanguard S&P 500 ETF

With a 12.8% return over the past decade, the Vanguard S&P 500 ETF (VOO 0.52%) is one of the first choices that investors should consider when looking to implement a dollar-cost-averaging strategy. The ETF replicates the performance of the S&P 500, which is widely considered the benchmark for the U.S. stock market.

The ETF is a nice blend of growth and value large-cap stocks, and with around 500 stocks in the fund, it gives investors instant diversity.

Vanguard Growth ETF

Growth stocks have been leading the way in the market for the better part of two decades. The Vanguard Growth ETF (VUG 0.58%) is a great way to invest in this dynamic. With a 15.3% return over the last 10 years, this ETF is another solid choice for investors looking to use a dollar-cost-averaging strategy.

While the ETF officially tracks the CRSP US Large Cap Growth Index, this is essentially the growth side of the S&P 500. It's not as diversified as the S&P 500, with only around 165 stocks in its portfolio, but you're getting the best of the large-cap growth stocks through the ETF.

Invesco QQQ Trust

The Invesco QQQ Trust (QQQ 0.38%) has quite simply been one of the best-performing non-sector-specific or non-leveraged ETFs over the past decade. The ETF tracks the performance of the Nasdaq-100 index, which is made up of the 100 largest non-financial stocks that trade on the Nasdaq Stock Exchange. The Nasdaq has long been known as the exchange for emerging growth and technology companies, so the ETF is heavily weighted toward these types of stocks.

The ETF has generated an average annual return of 17.7% over the past 10 years, easily ahead of the return of the S&P 500 over the same stretch. Even more impressive is that it has consistently beaten the S&P 500 more than 87% of the time on a 12-month rolling basis.

Schwab U.S. Dividend Equity ETF

Investing in growth and technology stocks is not the only investment style, and the Schwab U.S. Dividend Equity ETF (SCHD 0.11%) is a nice value investment alternative. The ETF tracks the Dow Jones U.S. Dividend 100 Index, which consists of high-yielding U.S. stocks that have long track records of consistently paying out dividends.

While the ETF has only generated a 10.6% average annual return over the past 10 years, it has produced a 12.2% annual average return since its inception in October 2011. That's a solid long-term track record.

ARK Next Generation Internet ETF

If you're looking to swing for the fences, the ARK Next Generation Internet ETF (ARKW -1.52%) could be right for you. Unlike the other ETFs, it is actively managed and does not follow an index. Instead, it is focused on investing in companies "that benefit from the increased use of shared technology, infrastructure and services, internet-based products and services, new payment methods, big data, the internet of things, and social distribution and media." In addition to investing in stocks, it currently has an investment in an ETF that tracks the price of Bitcoin.

The ETF has been a strong performer, generating an average annual return of 18.2% over the past 10 years. However, you'll need a strong stomach, as the ETF has seen some wild swings over the past few years, as shown in the table below.

Data source: Ark Invest.

As such, this ETF is only for the most aggressive investors.