A $200 monthly investment into the Vanguard S&P 500 ETF (VOO) might not seem like enough to build serious long-term wealth.
But it actually is. Time is going to be your most important ally.
Here's how $200 a month can turn into $1 million, using different time and return assumptions.
Two hundred dollars a month doesn't sound like much when your goal is to build a $1 million net worth. But that's why long-term investing in stocks is so exciting. It's a very achievable goal if you understand the math behind it.
The Vanguard S&P 500 ETF (NYSEMKT: VOO) is a great tool to use for this goal. It invests in 500 of the largest, most successful U.S. companies. And because it's market cap-weighted, it automatically evolves to overweight what's becoming more influential and vice versa.
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The key to getting there, though, is time. The longer you remain invested, and the longer you continue making periodic, regular investments, the larger your brokerage account balance can grow.
Let's run through a few hypotheticals to help you understand. We'll assume a starting balance of $0 and a monthly investment of $200.
| Annual return | Time to $1 million |
|---|---|
| 6% | Approximately 55 years |
| 8% | Approximately 45 years |
| 10% | Approximately 38 years |
| 12% | Approximately 33 years |
Data source: Calculator.net
Given that the long-term historical annual return for the S&P 500 (SNPINDEX: ^GSPC) is around 10%, it's probably safe to use that as a benchmark expectation going forward. If that holds in the future, you're looking at just under four decades to go from $200 a month to $1 million.
While 38 years might seem like a long time, it's also a great example of how time does the heavy lifting for you. Remember: $200 a month over 38 years equates to a total investment of $91,200. In the end, more than 90% of your account balance would come from capital growth.
This is just a starting point. If you increase that monthly investment or add an initial investment, that $1 million can turn into even more.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.