Unless you're already a billionaire, most of us would love to be a millionaire. It can seem like an impossible dream to many, but it's actually much more achievable than you might think.
It's hard to beat investing in the stock market for growing wealth, and if you're not that stock savvy, you might assume that in order to get rich with stocks, you need to spend a lot of time and energy studying stocks and then precisely timing your entries and exits in and out of them.
There's a much easier way to get wealthier via stocks, though, and just about anyone with some money to start with and with some time to let it accumulate can get richer --- very possibly even achieving millionaire status -- which is actually a necessary retirement nest egg for many people. Here's how to do it.
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The ideal strategy for investing in stocks
The ideal strategy for investing in stocks -- and being very successful at it -- is simply to be systematic and patient. It's mathematically true, after all, that to amass a large sum of money, you need three key things:
- Money invested -- ideally regularly
- A solid growth rate
- Time
You'll see the value of those three things in these tables. This first one clearly demonstrates the power of time -- no matter how much you invest, the longer it has to grow, the more it can grow. In addition, the more you can invest -- ideally regularly -- the more wealth you can amass.
|
Growing at 8% for: |
$7,000 Invested Annually |
$15,000 Invested Annually |
|---|---|---|
|
Five years |
$44,351 |
$95,039 |
|
10 years |
$109,518 |
$234,682 |
|
15 years |
$205,270 |
$439,864 |
|
20 years |
$345,960 |
$741,344 |
|
25 years |
$552,681 |
$1,184,316 |
|
30 years |
$856,421 |
$1,835,188 |
|
35 years |
$1,302,715 |
$2,791,532 |
|
40 years |
$1,958,467 |
$4,196,716 |
Calculations by author.
Our recent report on women and investing shows how much better all investors have done when they start investing as early as possible.
This table shows the power of the growth rate. There's no guaranteed rate of return in the stock market. Over many decades, the stock market has averaged annual returns of close to 10%, but over your particular period, it could be more or less. Here's a look at what you might amass at different average annual growth rates if you make annual investments of $10,000:
|
Growing for: |
Growing at 6% |
Growing at 8% |
Growing at 10% |
|---|---|---|---|
|
10 years |
$139,716 |
$156,455 |
$175,312 |
|
15 years |
$246,725 |
$293,243 |
$349,497 |
|
20 years |
$389,927 |
$494,229 |
$630,025 |
|
25 years |
$581,564 |
$789,544 |
$1.1 million |
|
30 years |
$838,017 |
$1.2 million |
$1.8 million |
|
35 years |
$1.2 million |
$1.9 million |
$3.0 million |
|
40 years |
$1.6 million |
$2.8 million |
$4.9 million |
Calculations by author.
The easiest way to invest in stocks
Once you decide you want to invest in stocks, how should you do it? Well, the simplest approach is just to invest in one or more low-fee, broad-market index funds, such as the SPDR S&P 500 ETF (SPY), Vanguard Total Stock Market ETF (VTI), and Vanguard Total World Stock ETF (VT). Respectively, they'll have you invested in 80% of the U.S. market, all the U.S. market, or most of the world's stock market.
Yes, you might achieve better-than-average returns by investing in some terrific individual stocks, but that's not guaranteed, either. The tables show how well you can do simply by earning index fund-level returns over long periods.
Still, go ahead and add some individual stocks to your mix if you want to -- just read up and learn a lot more about investing first.
Why you may need $1 million
Finally, don't dismiss the idea of amassing $1 million as silly or as a pipe dream. Clearly, many people can achieve it if they can invest meaningful sums for meaningful periods.
Remember that Social Security won't provide all you'll need in retirement. The average monthly retirement benefit check was only $1,835 as of April 2023 -- which amounts to about $22,000 annually. Meanwhile, if you retire at, say, 65, you may live to 95 or more -- meaning that your nest egg will have to supplement Social Security income for 30 years or more.
All this means it's important to start investing for your future as soon as you can -- and to stick to it over the years.
