Want a $1 Million Investment Portfolio? History Says This Strategy Could Get You There.
Key Points
Dollar-cost averaging stops you from trying to time the market because your buying schedule is already set.
The S&P 500 has averaged 10.6% annual total returns over the past 30 years.
The Vanguard S&P 500 ETF can be a passive, one-stop shop for long-term investors.
- 10 stocks we like better than Vanguard S&P 500 ETF ›
Inflation has undoubtedly changed how far your money stretches, but there's no denying that being a millionaire has a nice ring to it. For most people, seeing seven figures brings a sense of accomplishment and financial security.
The good news is that, as it has for decades, the stock market continues to mint millionaires. Thanks to the power of time and compound earnings, everyday investors have a path to $1 million. Let's take a look at how it can be done.
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Lean on dollar-cost averaging
Dollar-cost averaging involves setting a regular investment schedule and sticking to it, no matter what's happening in the market. For example, assume you have $1,000 to invest monthly in the S&P 500 (SNPINDEX: ^GSPC). You might consider one of these schedules:
- $250 every Monday
- $500 every other Friday
- $1,000 on the first of each month
- $125 every Tuesday and Thursday
- $500 on the first and 15th
Everyone's situation is different, so the exact schedule you choose isn't that important. What matters is sticking to your schedule regardless and investing no matter what happens in the market.
Dollar-cost averaging accomplishes two things: It stops you from trying to time the market because your buying schedule is already set, and it keeps you consistent. Both of those are key to a million-dollar portfolio.
The math behind reaching $1 million
Most people can't reach $1 million by saving alone and relying on interest from savings accounts. It generally takes investing in stocks and giving yourself a chance to take advantage of compound earnings and the wealth-building opportunities the stock market offers.
To see the path to $1 million, we'll assume you're investing in an S&P 500 ETF that averages 10% annual returns (the S&P 500 has averaged 10.6% annual total returns over the past 30 years). Here's how long it would take you to reach $1 million based on different monthly investment amounts:
| Monthly Investments | Years Until $1 Million |
|---|---|
| $250 | 38 |
| $500 | 31 |
| $1,000 | 24 |
| $1,500 | 20 |
| $2,000 | 18 |
Data source: Table by author. Years rounded to the nearest full year.
The best part (other than having a million dollars) is how much less than $1 million you would have personally invested to reach the mark. If you invested $500 monthly over 31 years, you would've only personally invested $186,000; $1,000 over 24 years is $288,000; and $2,000 over 18 years is $432,000.
How long it takes to reach $1 million ultimately depends on how much you invest and your returns, but the most important thing is to stay consistent. Without consistency, it gets much harder to accomplish, which is why dollar-cost averaging is so useful.
One investment can lead the way
Dollar-cost averaging aside, it's much easier to remain consistent when you're not overthinking what you're investing in. That's why an exchange-traded fund (ETF) based on the broader market like the Vanguard S&P 500 ETF (NYSEMKT: VOO) is a great go-to. It's diversified, cheap, and grows with the U.S. economy over time.
VOO has become tech-heavy, but you'll still get exposure to every U.S. blue chip stock across all industries. Whether it's Apple in tech, JPMorgan Chase in financials, Eli Lilly in healthcare, ExxonMobil in energy, or Walmart in consumer staples, you know you're being led by some of the world's top companies across the board.
Past results don't guarantee future performance, but the S&P 500 has historically been one of the surest ways to build wealth over time. It also outperforms most actively managed funds. According to the S&P Dow Jones indexes' SPIVA scorecard, 84.3% of actively managed large-cap funds underperform the S&P 500 over 10 years. So, in most cases, it's a cheaper, more effective option.
With a 0.03% expense ratio, or $0.30 per $1,000 invested, VOO is one of the cheapest ETFs on the market. It's sometimes easy to ignore expense ratios because differences seem small on paper, but when you're investing for decades, those small differences begin to add up.
Investors who have consistently invested in the S&P 500 over time have generally been well-rewarded. I don't foresee that changing.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Stefon Walters has positions in Apple, Vanguard S&P 500 ETF, and Walmart. The Motley Fool has positions in and recommends Apple, Eli Lilly, JPMorgan Chase, Vanguard S&P 500 ETF, and Walmart. The Motley Fool has a disclosure policy.
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