For some people, hitting the $1 million mark may seem like a stretch, but it's much more attainable than you may believe. In many cases, all it takes is one simple, often-overlooked investment: The S&P 500 (^GSPC -0.54%).
The S&P 500 is an index that tracks 500 of the largest public U.S. companies by market cap, making it the benchmark for the U.S. stock market. When people refer to the stock market's performance broadly, they're often referring to the S&P 500.
History has shown that the S&P 500 can be your one-way ticket to millionaire land with enough time on your side.
Proven long-term resultsThe S&P 500 has historically averaged around 10% annual returns over the long term. There's no guarantee it'll remain that way, but if we assume this trend continues, here's how long it'd take you to cross the $1 million threshold at different monthly investments.
|Monthly Investment||Years Until $1 Million||Personal Contributions|
Thanks to time and compound earnings, you can accomplish $1 million without so much as investing half that amount. In the case of $500 and $750 monthly investments, you contribute well under a quarter of the amount. The more time you have on your side, the less you need to invest monthly and contribute overall.You can also do both, taking advantage of time and increased contributions. Here's how investments would play out if you invested $1,000 monthly and averaged 10% annual returns over different timeframes:
|Years Invested||Personal Contributions||Investment Value|
Take advantage of a Roth IRA if you're eligible
A Roth IRA is a retirement account that lets you contribute and invest after-tax money and take tax-free withdrawals in retirement. Being able to have your investments grow and compound without owing capital gains can pay off big in retirement.
Choosing the right S&P 500 fund for you
The S&P 500 itself is an index, but different financial institutions put together their respective S&P 500 funds to mirror it. S&P 500 exchange-traded funds (ETFs) are S&P 500 funds you can trade on the stock exchange like individual stocks.
Since all S&P 500 ETFs mirror the same index, there's usually no meaningful difference between them, with the exception of the expense ratio. Both the Vanguard S&P 500 ETF (VOO -0.50%) and iShares Core S&P 500 (IVV -0.49%) have a 0.03% expense ratio, while the SPDR 500 ETF Trust (SPY -0.53%) is a bit more expensive at 0.0945%.My personal choice is the Vanguard S&P 500 ETF, but either choice is going to present you with a trifecta: Instant diversification, world-class companies, and proven long-term results. The keywords are "long-term" because investors should expect bumps in the road along the way. The S&P 500 has had down years roughly a quarter of the time since its inception. Still, the long-term results are undeniable.