Ask someone what wealth is, and you might get a number. For many, $1 million is that number. It certainly sticks in your mind. It’s a round number, often the top prize on your favorite game show. Besides, does being a thousandaire sound cool? No. And the goal of being a billionaire isn’t realistic for most people.
But a millionaire? Ah, it just sounds nice. It’s also far more obtainable than most people would let themselves believe. Accumulating a million bucks isn’t easy, but there are ways to do it that are surprisingly simple.
For example, here’s one virtually bullet-proof plan to do it: Invest $500 into this ETF each month, and… well, that’s it really, other than waiting.
It’s time to get started.
An ETF Warren Buffett puts Berkshire’s money behind
Famous investor Warren Buffett doesn’t need to invest in index funds. He’ll go down as one of humankind’s greatest stock pickers. But even he has put money into the Vanguard S&P 500 ETF (NYSEMKT: VOO) via his holding company, Berkshire Hathaway. Alongside 49 or so stocks, it’s one of only two ETFs in Berkshire’s equity portfolio.
The Vanguard S&P 500 is an exchange-traded fund (ETF). It’s made of 505 stocks, and is built to replicate the returns of the S&P 500, an index of America’s most prominent companies, and a widely recognized benchmark and proxy for the U.S. stock market. Investing in the S&P 500 is like a bet on the American economy.
What’s great about the Vanguard S&P 500 is that it gives investors instant diversification and costs very little to hold. All funds charge fees that go to the fund’s managers — a percentage of the amount each investor has in the fund. The sum of those fees is the fund’s expense ratio, and for the Vanguard S&P 500 ETF, that’s just 0.03%, or $3 a year for every $10,000 your investment is worth.
Making a million bucks with Vanguard’s S&P 500 ETF
Investment returns are a numbers game, but the S&P 500’s long-term track record is why it stands out as an obvious choice. As you may have noticed in the past few years, the stock market can be volatile in the short term. But over time frames measured in decades, the S&P 500 has been a fairly consistent compounder. It returned an average of 9.4% annually from 1972 to 2021.
Thanks to its dividend-paying components, the Vanguard S&P 500 also pays a dividend that yields 1.4%. But, for simplicity and to be a little conservative, let’s assume that its total returns will average about 10% annually from here.
If you invested $500 monthly into Vanguard’s S&P 500 ETF, your portfolio growth would look something like this over the years.
|
Years of Investing |
Portfolio Value |
|---|---|
|
5 |
$38,281 |
|
10 |
$99,932 |
|
15 |
$199,222 |
|
20 |
$359,130 |
|
25 |
$616,662 |
|
30 |
$1,031,422 |
Chart by author.
What’s the lesson here?
Look closely at the chart above. Do you see how it took 15 years to accumulate the first $200,000, but that amount more than quintupled over the next 15 years? That’s how compound growth works. The sooner you get started, the more time you have for that small money snowball to become a giant asset boulder thundering down the side of the mountain.
People often get busy in the grand scheme of life. You work hard for an education or to build a career. You want to get married, have children, buy a house and new cars, and treat yourself along the way. I get it. For many people, $500 will be a lot of money to cough up monthly. But the longer you put off starting to invest, the more work you’ll have to put in later to reach the same goals.
So, whether you’re retirement planning or building wealth in general, getting started as quickly as possible is the easiest path to your financial goals. This is the recipe right here. Investing doesn’t have to be complicated; you just have to get started.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
Want $1 Million? Invest $500 in This ETF Every Month was originally published by The Motley Fool
