Many investors dream of one day having a $1 million stock portfolio. It's a milestone that will put you among the wealthiest Americans, and it provides peace of mind that you'll be able to enjoy retirement thanks to your savings.
There are many ways to reach a $1 million investment portfolio. If you find the next Nvidia, it might take just a one-time $5,000 investment and 10 years of patience to grow your portfolio to $1 million. Indeed, Nvidia and other companies have helped make many millionaires from small investors throughout history.
But picking a stock that could provide that kind of return is like picking a needle out of a haystack. What's worse, you might just prick your finger and start bleeding trying to single out a big winner.
The simpler and more reliable way to become a millionaire is to buy the entire haystack.
Image source: Getty Images.
Consistently investing in a single ETF is the easiest way to become a millionaire
If Warren Buffett could only make one investment, he said it would be an S&P 500 index fund. He particularly favors Vanguard funds, and his company, Berkshire Hathaway, owns the Vanguard S&P 500 ETF(NYSEMKT: VOO).
Consistently investing your money in the Vanguard S&P 500 ETF is about as surefire a path to a $1 million investment portfolio as any I know. Buffett would agree.
There isn't anything magical about an S&P 500 index fund. It isn't sexy, and it won't make you a millionaire overnight like Nvidia or other artificial intelligence (AI)-fueled growth stocks. But investing in an S&P 500 index fund still offers an attractive long-term return, plus diversification, in a single investment.
Even if you suspect some under-the-radar company could be the next Nvidia, a major bet on that one company carries a lot of risk. You could also try to build your own diversified portfolio of individual stocks and other assets that could eventually reach $1 million. Maybe you'll have some big winners in it. But that requires time and effort spent researching the stocks and staying up to date on them. For the many investors who value simplicity, an S&P 500 index fund can act as a one-step solution for your portfolio.
Building a $1 million portfolio with just one ETF
Investing in an S&P 500 index fund like the Vanguard S&P 500 ETF will produce returns that closely match the S&P 500. Using history as a guide, we can make some good assumptions about what you can expect from a long-term investment.
Historically, the S&P 500 has produced a compound annual total return of about 9.8%. Based on that number, you can roughly map out how much you need to invest every month to build a $1 million portfolio.
| Years to $1 Million | Monthly Investment Required |
|---|---|
| 40 Years | $190 |
| 35 Years | $308 |
| 30 Years | $504 |
| 25 Years | $836 |
| 20 Years | $1,425 |
| 15 Years | $2,552 |
| 10 Years | $5,056 |
Calculations by author.
As you can see, the more time you have to build your $1 million portfolio, the less you have to contribute each month to get there. On top of that, contributing over a long period will cushion you from market volatility. The shorter your time horizon, the more susceptible your actual returns are to swings in the stock market. Keep in mind the above numbers are projections based on historical average returns. The market never goes up in a straight line.
Investors with a longer time horizon should consider how inflation will impact the value of their portfolio too. A million dollars 40 years ago had a lot more purchasing power than it does today. It's very likely $1 million 40 years from now won't go as far as it does currently. As such, you may want to adjust your goal and increase your monthly contributions.
But if you only want to make one investment, an S&P 500 index fund is a simple way to consistently grow your wealth over time.
Should you invest $1,000 in Vanguard S&P 500 ETF right now?
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
