As costs continue to rise and retirement becomes more expensive, it's more likely you'll need at least $1 million to cover all of your expenses later in life. In fact, the average worker expects to need around $1.8 million to retire comfortably, according to a 2023 survey from Charles Schwab.
While that can feel like an insurmountable goal, it's simpler than you might think to reach $1 million or more -- even if you're not an experienced investor.
Investing in exchange-traded funds (ETFs) can be a smart way to build long-term wealth with minimal effort. Each ETF contains dozens or hundreds of stocks, making it easier to create a well-diversified portfolio with a single investment.
Not all ETFs will suit all investors, but there's one rock-solid fund that's almost guaranteed to see positive returns over time. With just $300 per month, you could potentially build a portfolio worth at least $1 million. Here's exactly how to get there.
A safer and stronger investment
If you're looking for an investment that can protect your savings while still packing a punch, an S&P 500 ETF can be a fantastic option -- and the Vanguard S&P 500 ETF(NYSEMKT: VOO) is a particularly good option.
An S&P 500 ETF is an investment that tracks the S&P 500 Index, meaning it includes the same stocks as the index itself and aims to follow its performance. Each S&P 500 ETF contains stocks from 500 of the largest and strongest companies in the U.S., including household names like Amazon, Apple, Coca-Cola, and Procter & Gamble.
With an S&P 500 ETF, you can achieve instant diversification. By investing in just one share of this ETF, you'll own a stake in 500 different companies across a wide variety of industries. This can substantially lower your risk, especially during periods of market volatility.
Because the S&P 500 only contains strong companies, this type of investment is also far more likely to recover from downturns. All investments are subject to short-term volatility, but the stocks within the S&P 500 have the best chance of experiencing long-term growth.
The Vanguard S&P 500 ETF, in particular, is a well-established fund from a powerhouse brokerage. It also offers a rock-bottom expense ratio of just 0.03%, meaning you'll pay $3 per year in fees for every $10,000 in your account. This is lower than the fees of many other ETFs, which could save you thousands of dollars over time.
Building a $1 million portfolio
There are never any guarantees when it comes to the stock market, but the S&P 500 itself has a decades-long history of earning positive returns over time. Like any investment, it can be unpredictable in the short term. But over decades, it's incredibly likely to see positive gains.
Since its inception in 2010, the Vanguard S&P 500 ETF has earned an average rate of return of around 14% per year. However, compared to the market's long-term performance, that could be higher than what you might see going forward.
Historically, the market itself has earned an average rate of return of around 10% per year. This means that while the market very rarely sees 10% returns year after year, the annual highs and lows have averaged out to roughly 10% per year over time.
To play it safe, let's assume your investment only earns 10% average annual returns. If you were to invest $300 per month, here's approximately how much you might accumulate over time:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $206,000 |
| 25 | $354,000 |
| 30 | $592,000 |
| 35 | $976,000 |
| 40 | $1,593,000 |
Data source: Author's calculations via investor.gov.
To reach $1 million, you'll need to invest consistently for roughly 35 years. While that's a long time to wait, keep in mind that this investment requires next to no effort on your part. You never need to worry about researching stocks or deciding when to buy or sell. Simply invest whatever you can afford each month, then sit back and wait for your money to grow.
The Vanguard S&P 500 ETF is a powerhouse of an investment, yet it's also one of the safest ETFs out there. By investing consistently and giving your money as much time as possible to grow, you could earn more than you might think.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Katie Brockman has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Amazon, Apple, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
