Want a $2 Million Investment Portfolio While Barely Lifting a Finger? Here's What You'd Need to Invest Each Month.
Key Points
ETFs contain built-in diversification, limiting risk with minimal effort on your part.
Investing consistently is key to maximizing your long-term earnings.
Where you invest will have a major impact on your earning potential.
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The stock market is a wealth-building machine, and the right strategy can turn small, consistent contributions into a multi-million-dollar portfolio.
Your earning potential will depend on where you invest and how much you can afford to contribute each month. But even investments earning modest returns can be lucrative over time. Here's exactly what you'd need to invest each month to accumulate $2 million in the stock market.
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Where you invest matters
Of course, higher-yielding investments will help you reach $2 million faster. But that doesn't mean you should be taking on unnecessary risk to get there. Relatively safe investments can still generate life-changing wealth, even if it means giving your money more time to grow.
For simplicity's sake, let's assume you're investing in an S&P 500 ETF. This type of investment tracks the S&P 500 (SNPINDEX: ^GSPC), holding stocks from 500 of the largest and strongest U.S. companies.
The S&P 500 is widely considered a major pillar of the overall market, making it a strong choice for those looking to build long-term wealth with less risk. And because you're investing in 500 companies across all sectors of the market, you can achieve an instantly diversified portfolio with next to no effort on your part.
What it takes to reach $2 million
Historically, the S&P 500 itself has earned an average annual return of around 10%. In other words, the annual highs and lows have averaged out to roughly 10% over many decades. Because S&P 500 ETFs aim to replicate the index's performance, this type of investment will likely earn similar returns over time.
Assuming you're earning a 10% average annual rate of return, here's approximately what it would take to accumulate $2 million, depending on how many years you have to invest:
| Number of Years | Amount Invested Each Month | Total Portfolio Value |
|---|---|---|
| 25 | $1,700 | $2.003 million |
| 30 | $1,050 | $2.073 million |
| 35 | $625 | $2.033 million |
| 40 | $400 | $2.124 million |
Data source: Author's calculations via investor.gov.
S&P 500 ETFs can be a smart choice for those looking for a relatively safe investment with less short-term volatility, but because these funds track the market, they can only ever earn average returns.
Some ETFs -- like growth ETFs -- are designed to beat the market, and even marginally higher-than-average returns could help you earn exponentially more over time. These funds carry slightly more risk, though, so it's wise to consider your priorities to decide whether that's a worthwhile trade-off for greater earning potential.
No matter where you choose to invest, a long-term outlook is key to maximizing your earnings in the stock market. By getting started now and contributing as consistently as possible, you could earn more than you might think.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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