Building up a portfolio that's worth $1 million or more can seem daunting, even impossible if you don't have a lot of savings. But you don't need a huge lump sum to invest to get to a $1 million balance. Instead, you can make investments on a periodic basis, which, over time, will grow thanks to the effects of compounding.
Below, I'll show you how much you'd need to invest each year to get to $1 million after 30 years. And best of all, this is without having to invest in any risky stocks. Simply tracking the S&P 500 index, which is a collection of the top stocks, can be an effective way to increase your wealth over the long term.
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Why an S&P 500 fund can be the ideal investment option
The S&P 500 has averaged an annual return of 10% over the long term, making it a great index to track. Assuming those returns hold up, you would expect to see your investment to roughly double in value every seven years.
While you can't directly invest in the S&P 500, you can track it using exchange-traded funds (ETFs). There are many S&P 500 index funds to choose from, and an ideal one may be the SPDR S&P 500 ETF (SPY +0.70%) due to its low fees. Its expense ratio is just 0.09%, which means if you were to invest $10,000 in the fund, your annual fees would total just $9. As your investment rises in value, so too will your fees, but they will be extremely modest in relation to your overall investment.
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Key Data Points
Here's how much you'd need to invest each year to get your portfolio to $1 million
Although historically the S&P 500 has grown at an annual rate of about 10%, it's by no means a guarantee that it will continue to do so in the future. It is possible, given how hot the market has been in recent years, that a slowdown is inevitable.
Unfortunately, the most difficult factor to consider when estimating future returns is the growth rate. Although you may know how much you can afford to invest and how long you can stay invested, knowing the growth rate is next to impossible. And that will have a significant impact on your long-term gains. This also means you won't be able to definitively know just how much you would need to invest each year to be on track to build up a $1 million portfolio.
Although there's no crystal ball to know what the market's long-term growth rate will be, I've created the table below, which can show you how much you would need to invest per year to reach $1 million, based on varying growth rates. This can at least give you a rough range to work with and to get an idea of how much you'd need to aim to invest each year.
| Years | 9% Growth | 10% Growth | 11% Growth |
|---|---|---|---|
| 30 | $6,731 | $5,527 | $4,527 |
Table and calculations by author.
Assuming the S&P 500 doesn't do much worse or better than it has historically, then you would need to invest between $4,527 and $6,731 per year into an S&P 500 index fund. That means you would need to set aside $377 each month to be on track to reach the low amount ($4,527) and about $561 if you want to aim for the higher amount ($6,731) and factor in the possibility of lower-than-average returns.
In other words, with enough time, average market returns, and consistent investing, getting to $1 million is very much within reach.
