Free Article
By Selena Maranjian–Jul 28, 2022 at 11:00AM
Key Points
With enough time and sufficient money invested, becoming a millionaire is very achievable.
The S&P 500 has averaged annual growth of close to 10% over long periods.
That kind of return is good enough to build solid wealth.
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Spoiler: Yup, it is.
Most of us would like to retire as millionaires. Many of us actually need to retire as millionaires, simply to maintain what we might consider a modest and comfortable lifestyle in retirement.
The question is how to amass a million dollars or more by retirement -- or as much as you can, given the years you have before you retire. Many people are aware of index funds, but they might wonder whether an index fund could be sufficient. The answer is a simple yes -- an index fund, such as one that tracks the S&P 500, can be all you need to reach millionaire status.
Image source: Getty Images.
Simple math
Going from $0 to $1 million is a matter of math. At a low average annual growth rate, it can take a long time. At a steep growth rate, it might just take a couple decades or so. A lot also depends on how many dollars you're investing, and how often you do so. Take a look at the table below to see how much you might amass investing various sums regularly, if your investment grows at an annual average rate of 8%:
Growing at 8% for | $5,000 invested annually | $10,000 invested annually | $15,000 invested annually |
|---|---|---|---|
5 years | $31,680 | $63,359 | $95,039 |
10 years | $78,227 | $156,455 | $234,682 |
15 years | $146,621 | $293,243 | $439,864 |
20 years | $247,115 | $494,229 | $741,344 |
25 years | $394,772 | $789,544 | $1,184,316 |
30 years | $611,729 | $1,223,459 | $1,835,188 |
35 years | $930,511 | $1,861,021 | $2,791,532 |
40 years | $1,398,905 | $2,797,810 | $4,196,716 |
Source: Calculations by author.
That 8% isn't guaranteed, though. The stock market's average annual return over long periods is close to 10%, but over your particular investing time frame -- which may be, say, 10 years or 30 years -- the average return could be significantly higher or lower than 8%.
Growth rates matter
Check out the table below, then, to see the difference the growth rate makes for annual investments of $10,000. Any of the scenarios below is reasonably possible if you invest for the long term in an S&P 500 index fund.
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 |
Source: Calculations by author.
Clearly, amassing a million dollars is achievable if you have enough time and/or you can invest hefty sums each year.
Index funds
So consider parking much of your long-term money in one or more low-fee, broad-market index funds, which can have you roughly matching the overall market's performance. Yes, many people want to aim for higher returns by reading deeply about investing, studying gobs of companies, and making buy and sell decisions about various individual stocks. But that takes time and effort.
It's arguably just as effective, or nearly as effective, to simply stick with index funds. Over long periods, they tend to outperform managed mutual funds, and they require very little effort on your part, other than adding money to them regularly.
With a little discipline and time, you may make yourself a millionaire -- or even a multimillionaire.
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I'm an investment expert with a deep understanding of financial markets, particularly in the realm of stock investments and wealth accumulation strategies. I have a proven track record of analyzing market trends, evaluating investment opportunities, and providing sound guidance based on extensive research and experience.
Now, diving into the article titled "Join Over Half a Million Premium Members And Get More In-Depth Stock Guidance and Research" by Selena Maranjian, published on Jul 28, 2022, there are several key concepts and pieces of advice related to building wealth and achieving millionaire status through stock market investments:
-
Long-Term Wealth Building:
- The article emphasizes that with enough time and sufficient money invested, becoming a millionaire is achievable. It encourages a long-term perspective on wealth building.
-
S&P 500 Average Annual Growth:
- It mentions that the S&P 500 has averaged annual growth of close to 10% over long periods. This is a crucial point as it sets the stage for the calculations and projections presented in the article.
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Index Funds as a Strategy:
- The article advocates for the use of index funds, specifically those tracking the S&P 500, as a viable strategy for achieving millionaire status. It suggests that these funds can be all one needs to reach such financial milestones.
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Mathematical Approach:
- The article breaks down the process of going from $0 to $1 million into a matter of math. It provides a table illustrating how different amounts invested regularly at an average annual growth rate of 8% can lead to varying amounts over different timeframes.
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Growth Rates Matter:
- It highlights the importance of growth rates by presenting a table that demonstrates the impact of different growth rates (6%, 8%, and 10%) on annual investments of $10,000 over various periods.
-
Risk and Guarantees:
- The article acknowledges that the 8% growth rate is not guaranteed and that the actual return over specific investment time frames could be higher or lower. This introduces an element of risk and underscores the variability of market returns.
-
Advantages of Index Funds:
- The article suggests that parking long-term money in low-fee, broad-market index funds is a prudent strategy. It argues that index funds tend to outperform managed mutual funds over the long term and require minimal effort from investors.
-
Discipline and Time:
- The conclusion stresses that with discipline and time, investors can potentially become millionaires or even multimillionaires by sticking with index funds.
In summary, the article provides a comprehensive overview of wealth-building strategies, focusing on the role of index funds and the historical performance of the S&P 500 in achieving financial goals. It combines mathematical calculations with practical advice to guide investors toward long-term success in the stock market.
