How S&P 500 Index Funds Can Make You a Millionaire

WWhen it comes to investing, you have options: you can select individual stocks for your portfolio, or you can stock up on index funds. Index funds are funds that aim to match the performance of the indices to which they are linked. S&P 500 index funds, for example, seek to mimic the performance of S&P 500 himself. And it’s also a good bet if your goal is to become a millionaire.

There are many types of index funds to choose from, but the advantage of investing in S&P 500 index funds is that by doing so, you are effectively building a portfolio of the top 500 publicly traded companies. The only difference is that you don’t buy 500 different stocks one at a time.

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One of the advantages of index funds is that they charge relatively low fees (whereas actively managed mutual funds, which employ fund managers to choose investments, charge higher fees). Additionally, many index funds do not have a minimum investment requirement (unlike actively managed funds).

Ready to start?

So let’s say you want to invest in index funds. Great! The question is, can they really make you a millionaire? And the answer is, if you invest enough money over a long enough period of time, absolutely.

The S&P 500 has historically generated an average annual return of around 9%. Now, let’s say you’re ready to invest $ 300 per month in S&P 500 index funds. Here is the wealth you could accumulate, depending on your savings window:

Save $ 300 per month for many years

Here’s what you’ll get (assuming an average annual return of 9%)

25 years

$ 305,000

30 years

$ 491,000

35 years

$ 776,000

40 years

$ 1.2 million

45 years old

$ 1.9 million

Table and calculation by author.

As you can see, it’s entirely possible to raise $ 1 million with S&P 500 index funds alone. The key, however, is to invest consistently and give yourself enough time to profit from the returns. compounds. Of course, if your investment window is narrower – let’s say you’re already in your 40s and only starting to invest now – you can compensate by increasing the amount you invest each month.

For example, if your goal is to end up with $ 1 million in time for retirement, you want to start at 67, and you are 42 right now, invest $ 1,000 per month in S&P index funds. 500 could achieve this goal. If you are 52 and have the same target retirement age, you can invest $ 3,000 per month in S&P 500 index funds and end up with $ 1 million as well.

While there are tons of S&P 500 index funds you can choose from, here are a few good options worth considering:

  • The Schwab S&P 500 Index Fund (NASDAQMUTFUND: SWPPX) has no minimum investment and some of the lowest fees you’ll see out there
  • The Fidelity 500 Index Fund (NASDAQMUT FUND: FXAIX) previously had a minimum investment, but this requirement was recently removed, making this low-cost fund accessible to more investors

Index funds are an easy way to build wealth, and it’s best to focus on S&P 500 funds in particular. This could be your ticket to reach millionaire status in your life.

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Maurie backman 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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