1 Low-Risk Way to Help Grow Your Portfolio to $1 Million

For many investors, growing their portfolio to at least $1 million is a key goal, especially if their plan is to have a strong nest egg by retirement. But there's always the temptation to try to generate better returns in a shorter time frame, and that can lead people to take on more risk. The problem, however, becomes that if you incur losses through that strategy, then you may be inclined to take on even more risk to achieve even better returns to offset them. The situation can quickly spiral out of control, and cripple your investment plans.

But to get to $1 million, you don't have to take on significant risk. A slow-and-steady approach of remaining invested in a top exchange-traded fund (ETF) for decades can be a no-nonsense way to build up a massive portfolio. Specifically, investing in an ETF that mirrors the broad S&P 500 index can put you on a path to a $1 million portfolio.

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Image source: Getty Images.

Why the S&P 500?

The S&P 500 index contains the 500 largest publicly traded U.S. companies. When a business reaches the level where it earns inclusion in the index, that's an added sign of its credibility.

Historically, investing in the broad index has been a great strategy. Over the past 97 years, it has averaged an annual total return of around 10%, including dividend reinvestment. Over the course of a 10-year period, an investment that rises by 10% per year will grow by nearly 160%. And over a 20-year period, those gains rise to over 570%.

Those are great returns, especially when you consider that the overall risk in this strategy is low. There will of course be years where the overall market performs poorly and loses money, but over the long term, you're likely to amass some strong gains. And you can track the S&P 500 through an ETF such as the SPDR S&P 500 ETF (NYSEMKT: SPY).

^SPX data by YCharts.

How to grow your portfolio to $1 million

There are multiple ways you could invest in the SPDR S&P 500 ETF to put yourself on track to retire with a $1 million portfolio. You could invest a lump sum today and let it sit for the long haul. Or, if you don't have a large amount of money to invest now, then starting with a small amount and steadily investing more money each month or paycheck can work, too. That requires a bit more work, but either way, make sure you're reinvesting your dividends, and then watch your gains compound along the way.

As an example of the buy-and-forget approach, let's postulate that you invest $35,000 into the SPY ETF today. Assuming that your investment grows by an average of 10% per year it would take nearly 36 years for it to reach a $1 million valuation. However, if that market doesn't fare as well in the coming decades as it has in the past -- and some pundits and market-watchers view that as a strong possibility given how hot the market has been in recent years -- then it could take longer than that.

If instead, you contribute a set amount each month to an index fund, you can still get to a $1 million holding over the long term. Again assuming a 10% annualized return, the table below shows you what your future portfolio balance could be based on varying monthly investment amounts.

Calculations by author.

If you're able to invest $300 per month, that could put you on track to reach a $1 million portfolio balance before year 35.

Tracking the S&P 500 is a safe long-term strategy

There's no way to know how the S&P 500 will perform over the long haul, but investing in a fund that tracks it has been one of the best low-risk ways to achieve strong long-run returns. Investing in the SPY ETF can be a sensible strategy for a lot of investors, especially for those who would prefer not to spend a lot of time and effort analyzing individual stocks and managing their portfolios.

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David Jagielski 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.