If you ask someone what wealth is, you might get a number. For many people, $1 million is that number. It's definitely memorable. This is an approximate number and is often the top prize on your favorite game show. in addition, millionaire Sound cool? no. and, billionaire That's not realistic for most people.
but, millionaire? Oh, that's nice. It's also much more available than most people believe. Saving a million dollars isn't easy, but there are surprisingly easy ways to do it.
For example, there is one virtually foolproof plan for doing this. Invest $500 in this ETF every month. That way, that's really all there is to it other than waiting.
It's time to start.
ETF Warren Buffett backs Berkshire funds
Famous investor Warren Buffett doesn't need to invest in index funds. He will go down as one of humanity's greatest stock pickers.But he put money into even he Vanguard S&P 500 ETF (NYSEMKT: VOO) Through his holding company, berkshire hathaway. It's one of just two ETFs in Berkshire's stock portfolio, along with some 49 stocks.
Vanguard S&P 500 is an exchange-traded fund (ETF). It consists of 505 stocks and is constructed to replicate that return. S&P500, an index of America's most prominent companies and widely recognized as a benchmark and proxy for the American stock market. Investing in the S&P 500 is like betting on the American economy.
The great thing about the Vanguard S&P 500 is that it provides instant diversification for investors and has almost no cost to own. All funds charge a fee, a percentage of the amount each investor holds in the fund, which is paid to the fund's manager. The sum of these fees is the fund's expense ratio, which for the Vanguard S&P 500 ETF is just 0.03%, or $3 per year per $10,000 of investment value.
Earn $1 million with Vanguard's S&P 500 ETF
Return on investment is a numbers game, and the S&P 500's long-term track record is what makes it stand out as the obvious choice. As you've probably noticed over the past few years, the stock market can be volatile in the short term. But over a multi-decade time frame, the S&P 500 has been a fairly stable stock mix. From 1972 to 2021, the average annual return was 9.4%.
Thanks to its dividend-paying components, the Vanguard S&P 500 also pays a dividend with a yield of 1.4%. But for the sake of simplicity, and to be a little conservative, let's assume that your total return from here averages around 10% per year.
If you invested $500 per month into Vanguard's S&P 500 ETF, your portfolio would grow over several years as follows:
|
long-term investment |
portfolio value |
|---|---|
|
Five |
$38,281 |
|
Ten |
$99,932 |
|
15 |
$199,222 |
|
20 |
$359,130 |
|
twenty five |
$616,662 |
|
30 |
$1,031,422 |
Graph by author.
What's the lesson here?
Take a close look at the chart above. Did you know that the first time it took him 15 years to raise $200,000, but the second time he raised that amount, he more than quintupled in 15 years? That's how compound growth works. The sooner you start, the longer it will take for that little snowball of money to become a gigantic boulder of wealth roaring down the mountainside.
People often get busy in the grand scheme of life. You are working hard to build your education and career. You want to get married, have kids, buy a house and a new car, and treat yourself in the process. Understood. For many people, $500 a month is a lot of money to cough up. But the longer you put off investing, the more effort you'll have to put in later to achieve the same goal.
So whether you're planning for retirement or building wealth in general, starting as early as possible is the easiest path to your financial goals. This is the recipe. Investing doesn't have to be complicated. You just have to start.
Should I invest $1,000 in the Vanguard S&P 500 ETF right now?
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Justin Pope has no position in any stocks mentioned. The Motley Fool owns positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETFs. The Motley Fool has a disclosure policy.
Do you want a million dollars? Invest $500 in this ETF Every Month was originally published by The Motley Fool
