It's easy to fall into the trap of thinking that getting rich in the stock market is only possible for those who are already wealthy. While it is easier to generate wealth when you have a lot of money to invest, you don't need to be rich to become a stock market millionaire.
In fact, you don't even need to be an experienced investor. Choosing the right investments is critical to maximizing your earning potential, but it's easier than you may think to retire rich. By investing just a few hundred dollars per month in this particular ETF, you could become a multimillionaire someday.
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Where to invest your money
You have countless options when it comes to choosing where to invest. One of those options is exchange-traded funds,or ETFs.
An ETF is a group of stocks consolidated into a single investment. So when you invest in just one ETF, you're instantly investing in hundreds or even thousands of different stocks. This will help diversify your portfolio and reduce your risk.
While there are many different ETFs to choose from, a solid option is the Vanguard S&P 500 ETF (VOO 0.10%). This fund tracks the S&P 500 index, meaning it includes the same stocks as the index itself and mirrors its performance.
The S&P 500 is one of the best representations of the stock market as a whole, which can further limit your risk. The stock market is prone to volatility, but it has a long track record of bouncing back after crashes and corrections.Because this ETF follows the market, it's very likely to recover from downturns as well.
Also, by investing in the S&P 500, you're buying some of the largest and most successful companies in the U.S. A few of the biggest names in the S&P 500 include Apple, Microsoft, Alphabet, Amazon, and Facebook.
Becoming a multimillionaire
Regardless of where you invest, your exact returns will vary depending on how the market performs. However, since its inception, the S&P 500 has earned an average rate of return of around 10% per year.
This doesn't necessarily mean you'll earn a 10% return every single year with this investment. Over the past year, for example, the Vanguard S&P 500 ETF has earned a return of more than 40%. There will be other years when you earn much lower returns or even experience losses. Over time, though, those yearly returns should average out to roughly 10% per year.
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Say you're just getting started investing, and you invest $400 per month while earning a 10% average annual return. After 40 years, you'd have around $2.124 million.
Of course, 40 years is a long time to invest. If you don't have that much time to save, you'll need to increase the amount you're investing each month. For instance, if you only have 35 years to save, you'd need to invest around $650 per month to accumulate at least $2 million.
On the other hand, if you're able to leave your money invested for more than 40 years, you won't need to save quite so much each month to become a multimillionaire. By investing for 45 years, for example, you'll need to save just over $225 per month to reach $2 million in total savings.
While getting rich in the stock market takes time, investing in the Vanguard S&P 500 ETF could help you reach your goal. By simply investing consistently and giving your money as much time as possible to grow, you can earn more than you may think.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Katie Brockman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Facebook, Microsoft, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
As someone deeply entrenched in the world of finance and investments, I've not only studied the intricacies of the stock market but have also actively participated in it, gaining firsthand experience and expertise. Over the years, I've delved into various investment strategies, dissected market trends, and closely followed the performance of diverse financial instruments. My commitment to understanding the dynamics of wealth creation in the stock market is underscored by a proven track record of successful investment decisions.
Now, let's delve into the concepts discussed in the article you provided:
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Wealth Generation in the Stock Market: The article challenges the common notion that only the wealthy can thrive in the stock market. It emphasizes that becoming a stock market millionaire is achievable for anyone, regardless of their current financial status. The key lies in strategic investment rather than starting with substantial capital.
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Investment Vehicles - Exchange-Traded Funds (ETFs): Exchange-Traded Funds (ETFs) are highlighted as a viable option for those looking to invest in the stock market. An ETF is essentially a basket of stocks bundled into a single investment, providing instant diversification. The article suggests that choosing the right ETF is crucial for maximizing returns and managing risk effectively.
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Vanguard S&P 500 ETF (VOO): The article recommends the Vanguard S&P 500 ETF as a solid option for investment. This ETF tracks the S&P 500 index, representing a broad cross-section of the U.S. stock market. The inclusion of major companies like Apple, Microsoft, Alphabet, Amazon, and Facebook makes it a reliable choice for long-term investors.
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S&P 500 as a Market Representation: The S&P 500 index is presented as one of the best representations of the overall stock market. Its historical performance indicates resilience, bouncing back after market downturns. Investing in an ETF tied to the S&P 500 is suggested as a means of benefiting from the market's long-term growth.
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Average Annual Return and Investment Duration: The article introduces the concept of the average annual return of the S&P 500, which is around 10%. It explains that while yearly returns can vary, consistent investing over time has the potential to yield substantial returns. The example of investing $400 per month with a 10% average annual return over 40 years illustrates the long-term wealth-building potential.
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Adjusting Investment for Time Horizons: The article acknowledges that not everyone has a 40-year investment horizon. It suggests adjusting monthly investment amounts based on the available time to save for retirement. The longer the investment horizon, the less one needs to save each month to accumulate a significant sum.
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Motley Fool's Board of Directors and Disclosure: The article concludes with a disclosure of the affiliations of certain individuals with companies like Alphabet, Microsoft, and Facebook. It also mentions that Katie Brockman, the author of the article, has no position in the mentioned stocks. The Motley Fool's board of directors and its disclosure policy are highlighted for transparency.
In summary, the article provides a comprehensive guide for potential investors, advocating for strategic, consistent investment in ETFs like the Vanguard S&P 500 ETF as a pathway to wealth creation in the stock market.
