Many investors dream of one day having a $1 million stock portfolio. It's a milestone that puts you among the wealthiest Americans, and it gives you the peace of mind that your savings will help you enjoy retirement.
There are many ways to achieve a $1 million investment portfolio. When you find the next one Nvidia, it can take as little as a one-time investment of $5,000 and ten years of patience to grow your portfolio to $1 million. Nvidia and other companies have made many millionaires from small investors throughout history.
But choosing a stock that can deliver that kind of return is like picking a needle out of a haystack. What's worse, you might prick your finger and start bleeding while trying to pick a big winner.
The easier and more reliable way to become a millionaire is to buy the whole haystack.
Investing consistently in a single ETF is the easiest way to become a millionaire
If Warren Buffett could only make one investment, he said it was a S&P500 index fund. He is particularly supportive of Vanguard funds, and his company, Berkshire Hathawayowns the Vanguard S&P 500 ETF (NYSEMKT: VOO).
Consistently investing your money in the Vanguard S&P 500 ETF is about as surefire a path to a $1 million investment portfolio as I know. Buffett would agree.
There's nothing magical about an S&P 500 index fund. It's not sexy, and it won't make you a millionaire overnight like Nvidia or others artificial intelligence (AI) powered growth stocks. But investing in an S&P 500 index fund still offers attractive long-term returns, plus diversification, in a single investment.
Even if you suspect that an under-the-radar company could be the next Nvidia, making a big bet on that one company carries a lot of risk. You can also try building your own diversified portfolio of individual stocks and other assets, which could eventually reach $1 million. You might have some big winners in there. But that requires time and effort spent researching the stocks and staying up to date. For the many investors who value simplicity, an S&P 500 index fund can act as a one-step solution for your portfolio.
Build a $1 Million Portfolio with Just One ETF
Investing in an S&P 500 index fund like the Vanguard S&P 500 ETF delivers returns that closely track the S&P 500. With history as a guide, we can make some good assumptions about what to expect from a long-term investment.
Historically, the S&P 500 has delivered a compound annual total return of approximately 9.8%. Based on that number, you can roughly map out how much you need to invest each month to build a $1 million portfolio.
|
Years up to $1 million |
Monthly investment required |
|---|---|
|
40 years |
$190 |
|
35 years |
$308 |
|
30 years |
$504 |
|
25 years |
$836 |
|
20 years |
$1,425 |
|
15 years |
$2,552 |
|
10 years |
$5,056 |
Calculations by author.
As you can see, the more time you have to build your $1 million portfolio, the less you'll have to contribute each month to get there. In addition, contributing over a long period of time protects you from market volatility. The shorter your time horizon, the more sensitive your actual returns are to stock market fluctuations. Please note that the above figures are projections based on historical average returns. The market never goes up in a straight line.
Investors with a longer time horizon should consider how inflation will also affect the value of their portfolio. A million dollars had much more purchasing power forty years ago than it does today. It is very likely that in forty years, $1 million will not go as far as it does today. Therefore, you may want to adjust your goal and increase your monthly contributions.
But if you only want to make one investment, an S&P 500 index fund is an easy way to consistently grow your wealth over time.
Should you invest $1,000 in the Vanguard S&P 500 ETF now?
Consider the following before buying shares in Vanguard S&P 500 ETF:
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has one disclosure policy.
This ETF is the easiest way to become a millionaire investor was originally published by The Motley Fool
