BBecoming a stock market millionaire may seem like a lofty goal, but it’s more achievable than you think.
You don’t have to be rich to build wealth in the stock market, but you do need the right investments. While there are seemingly endless options to choose from, there is one, in particular, that legendary investor Warren Buffett strongly endorses: S&P500 index fund.
In fact, in Berkshire Hathawayof the 2020 annual meeting, Warren Buffett explained that when it comes to choosing investments, “for most people, the best thing to do is to own the S&P 500 index fund.”
S&P 500 index funds can be a smart option in many cases, and they could also help you become a stock market millionaire. Here’s how.
What are S&P 500 index funds?
The S&P 500 itself is a stock market index that includes the stocks of 500 of the largest and strongest companies in the United States. This index is generally considered to be a strong representation of the stock market as a whole, as the companies in the index cover a wide variety of industries.
Although it is not possible to invest in the index itself, you can invest in an S&P 500 index fund. This type of investment aims to reflect the performance of the S&P 500, containing the same stocks as the index.
There are many different funds to choose from, but some of the more popular options include the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the iShares Core S&P 500 ETF (NYSEMKT:IVV).
Historically, the S&P 500 itself has earned an average rate of return of around 10% per year. This does not necessarily mean that you will get 10% returns every year. On the contrary, your investments will have good years and bad years, obtaining above or below average returns. However, over decades, these highs and lows are expected to average around 10% per year.
However, perhaps the most attractive aspect of S&P 500 index funds is that they are maintenance-free investments. You never have to worry about picking individual stocks or deciding when to buy or sell. All you have to do is invest what you can afford and then let the fund do the rest of the work for you.
Reaching $1 Million with S&P 500 Index Funds
This type of investment may not experience explosive growth, but it can help you earn a significant amount of money over time.
For example, suppose you invest in an S&P 500 index fund and earn an average annual return of 10%. Here’s how much you’d need to invest each month to reach $1 million, depending on how many years you’ve been letting your money grow.
|Number of years||Amount invested each month||Total Savings|
The more time you have, the less you will need to invest each month to accumulate a significant amount of money. But even if you start late, it’s still possible to reach $1 million if you are able to increase your savings.
Also, while it takes decades to build a million-dollar portfolio, keep in mind that S&P 500 index funds require virtually no effort on your part. Other than making regular contributions, you don’t have to do anything to grow your money.
S&P 500 index funds can be a smart option for many investors, especially those who prefer a hands-off approach. By investing regularly and giving your money as much time as possible to grow, you’ll be well on your way to becoming a stock market millionaire.
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Katie Brockman owns the Vanguard S&P 500 ETF. The Motley Fool owns and recommends Berkshire Hathaway (B shares) and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short puts in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
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