Retiring a millionaire may seem out of reach, especially if you’re not already wealthy. However, it’s easier than you may think to retire rich, even if you’re earning an average salary.
The key is to choose the right investments. Some investments promise to make you a lot of money in a short amount of time, but they can be incredibly risky and, oftentimes, too good to be true.
There’s one investment, however, that could potentially make you a millionaire with little to no effort: the S&P 500 ETF.
What are S&P 500 ETFs?
The S&P 500 is a stock market index that includes 500 of the largest U.S.-based companies, such as Amazon, Apple, and Microsoft. An S&P 500 ETF, then, is an investment that follows the index and attempts to mirror its performance.
When you invest in an S&P 500 ETF, you’re instantly buying all the companies within the index. This creates an instantly diversified portfolio with just one investment.
This type of investment is also more likely to see consistent growth over time. While the S&P 500 is subject to volatility and has experienced corrections and crashes in the past, historically, it’s always recovered from downturns. Although there are never any guarantees when it comes to the stock market, there’s a very strong chance your S&P 500 ETF will grow over time as well.
It takes time to make a significant amount of money with S&P 500 ETFs. But with enough patience, you could earn $1 million or more.
Reaching millionaire status
Again, the S&P 500 does face its fair share of volatility. Historically, though, it’s earned an average rate of return of around 10% per year. In other words, the highs and lows it experiences from year to year average out to around 10% over time.
Say you want to retire with $1 million, and your investments are earning a 10% average annual rate of return. Here’s how much you’d need to save each month, depending on how many years you have to let your money grow.
|Number of Years||Amount Saved per Month||Total Savings|
The earlier in life you’re able to begin saving, the less you’ll need to invest each month to retire a millionaire. So even if you don’t have much to save now, it’s wise to get started anyway rather than waiting too long.
While it does take decades to accumulate $1 million or more with S&P 500 ETFs, the good news is that besides investing consistently, you don’t need to do anything to help your money grow. You never need to choose individual stocks, and you don’t have to worry about buying or selling investments. All you have to do is sit back and wait.
S&P 500 ETFs are perfect for those looking for a passive investment that requires next to no effort. By starting to invest now, you could potentially be a millionaire by the time you retire.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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