Setting aside whatever money you can into a well-diversified growth fund can be a move you'll thank yourself for in the future.
You don't need thousands of dollars to start investing and saving for retirement. Breaking it down to a few hundred dollars per month that you invest into stocks can make all the difference in your retirement years. Whether it's reducing the number of times you eat out or go to the movies, collectively those changes can free up money in your budget, which could go a long way.
Here's how setting aside $200 per month for 30 years and investing it can lead to more than $1 million by the time you retire.
Investing in growth funds can lead to great returns
A big challenge for many people when it comes to investing is that it can be overwhelming and difficult to know which stocks to buy or not to buy. Exchange-traded funds (ETFs), however, can drastically simplify that equation for you. By giving you exposure to a diverse a mix of stocks, you no longer need to worry about tracking individual stocks and determining whether you need to change anything in your portfolio.
Instead, you can invest in funds which focus on long-term growth. One such example is the Vanguard Growth ETF (VUG -2.25%).
This ETF has a small expense ratio of just 0.04%, which is important in the long run, as it means fees won't take out a big chunk of your overall returns. It focuses on investing in large U.S. stocks where there are strong growth opportunities. This is by no means the only growth fund that may be suitable for a long-term investing strategy, but it's definitely one of the better ones to consider.
The Vanguard Growth ETF contains more than 200 stocks, with its largest holdings being Apple, Microsoft, and Amazon. Approximately 55% of the fund's holdings are in tech stocks, with consumer discretionary stocks being a distant second, accounting for 20%. Over the past 10 years, the fund has generated total returns (including dividends) of 280%, which is far better than the S&P 500's total returns of 217% over the same period.
The path to $1 million
The ETF's returns over the past 10 years average out to a compounded annual growth rate of 14.3%. The good news is you would need less than that to get to $1 million if you invest $200 per month.
If you were to invest $200 per month over the course of the next 30 years, that would equate to a total investment of $72,000. That's significant, but it's through the effects of compounding that would get your portfolio to a more than $1 million valuation.
For a growth-oriented fund such as the Vanguard Growth ETF to get your portfolio to more than $1 million after 30 years, it would need to grow at an average rate of at least 13.6% -- that's lower than its 10-year average annual return, although it is above the longer-term growth rate of the broader stock market as a whole. This assumes that you continue to invest $200 per month into the fund.
Here's a breakdown of what your portfolio's balance would look like at every five years under this scenario:
| Year | Balance |
| Five | $17,246.38 |
| 10 | $51,158.69 |
| 15 | $117,841.92 |
| 20 | $248,964.03 |
| 25 | $506,795.09 |
| 30 | $1,013,779.41 |
Calculations by author.
The power of compounding comes in later years, when you've built up a large balance. At that stage, a 13.6% increase every year will have a much greater effect than when your portfolio is much smaller.
Thus, a key part to making this strategy work is ensuring that you expect to have 30 years or more to go until retirement. You can still generate a great return even if you don't, but to get to $1 million with a $200 monthly investment, you'll ideally want to have around that number of investing years left. If you don't, you could offset this by investing more money each month.
Investing early and often is the key
Regardless of which ETF you may want to invest in, focusing on one that invests in growth stocks can put you into a great position to profit from strong returns in the future. As long as you commit to investing $200 per month or whatever you can afford, you'll put yourself into a much better financial position by the time you retire.
Ideally you can get to the $1 million mark, but even if you don't, saving and putting aside money every month into a diversified fund such as the Vanguard Growth ETF can be a decision that pays off significantly in the future.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Vanguard Index Funds - Vanguard Growth ETF. The Motley Fool has a disclosure policy.
FAQs
The path to $1 million
How much more do you need to invest per month to have $1 m at retirement? ›
You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.
How much do you need to invest per month to become a millionaire? ›
If you are starting from scratch, you will need to invest about $4,757 at the end of every month for 10 years. Suppose you already have $100,000. Then you will only need $3,390 at the end of every month to become a millionaire in 10 years.
What if you invest 200 a month for 30 years? ›
If you're investing $200 per month while earning a 10% average annual return, you'd have around $395,000 after 30 years. While that's a long time to invest, keep in mind that this investment requires next to no effort.
How much to invest per month to have $1 million in 10 years? ›
In order to hit your goal of $1 million in 10 years, SmartAsset's savings calculator estimates that you would need to save around $7,900 per month. This is if you're just putting your money into a high-yield savings account with an average annual percentage yield (APY) of 1.10%.
How many people have $1,000,000 in retirement savings? ›
You're not alone if your retirement account balances are far from the $1 million mark. While many people may aim for that goal, most don't reach it. Employee Benefit Research Institute (EBRI) data estimates that just 3.2% of Americans have $1 million or more in their retirement accounts.
At what age should you have $1 million in retirement? ›
Retiring at 65 with $1 million is entirely possible. Suppose you need your retirement savings to last for 15 years. Using this figure, your $1 million would provide you with just over $66,000 annually. Should you need it to last a bit longer, say 25 years, you will have $40,000 a year to play with.
How to turn 200k into 1 million? ›
Here are the five steps you can do:
- Evaluate Your Starting Point. Putting together $200,000 to invest is no small feat. ...
- Estimate Your Risk Tolerance. Your risk tolerance will determine what investments you're comfortable making. ...
- Calculate Necessary Returns. ...
- Allocate Investments Wisely. ...
- Minimize Taxes and Fees.
For this article we scoured various analyst reports and interviews to pick 11 stocks that experts believe can make one rich in the next 5-10 years.
- Freeport-McMoRan Inc (NYSE:FCX)
- Comcast Corporation (NASDAQ:CMCSA) ...
- AES Corp (NYSE:AES) ...
- Tarsus Pharmaceuticals Inc (NASDAQ:TARS) ...
- ChargePoint Holdings Inc (NYSE:CHPT) ...
Making $4,000 a month based on your investments alone is not a small feat. For example, if you have an investment or combination of investments with a 9.5% yield, you would have to invest $500,000 or more potentially. This is a high amount, but could almost guarantee you a $4,000 monthly dividend income.
Key Points. The Vanguard Growth ETF is one of many great growth-oriented funds that can deliver market-beating returns. If you can invest $200 per month for 30 years, thanks to the power of compounding, you could end up with a portfolio of more than $1 million.
What if I invested $200 a month in S&P 500? ›
The magic of compounding
All of this means that if you invest $200 per month in the SPDR S&P 500 ETF over the next 15 years, your investment could reach $76,254. That's thanks to compounding, or the idea that gains will create more gains as time goes by.
How much will I have if I invest $500 a month for 10 years? ›
What happens when you invest $500 a month
| Rate of return | 10 years | 20 years |
|---|
| 4% | $72,000 | $178,700 |
| 6% | $79,000 | $220,700 |
| 8% | $86,900 | $274,600 |
| 10% | $95,600 | $343,700 |
Nov 15, 2023
One of the fastest ways to make a million dollars is by investing in high-risk, high-reward ventures such as stocks or cryptocurrencies. You can also start a business and scale it up quickly by leveraging technology and creating an online presence.
How to be a millionaire in 5 years? ›
Here are seven proven steps to get you wealthy in five years:
- Build your financial literacy skills. ...
- Take control of your finances. ...
- Get in the wealthy mindset. ...
- Create a budget and live within your means. ...
- Step 5: Save to invest. ...
- Create multiple income sources. ...
- Surround yourself with other wealthy people.
Assuming that you can earn this 10% average return over your investing career, if you are getting started investing this year and you want to become a millionaire in 30 years, you would need to invest $506.60 per month. This amount may seem like a lot, but it may actually be pretty doable for many people.
How to reach $1 million in retirement savings? ›
Starting early gives you much more flexibility. If you begin putting away $300 a month at age 25, you can reach your retirement savings goal while enjoying the ability to spend freely. If you're able to start saving at age 20, you can contribute just $190 a month and be able to reach your million-dollar target.
How much do I need to contribute to my 401k to reach $1 million? ›
How Long Will Becoming a 401(k) Millionaire Take? If you invested $23,000 into your 401(k) each year and earned a consistent 8% return each year, you'd achieve a plan balance of $1 million in slightly under 20 years. Note that this does not factor in a potential employer match.
How much do I need in a 401k to get $1 000 per month? ›
The $1,000 per month rule is a guideline to estimate retirement savings based on your desired monthly income. For every $240,000 you set aside, you can receive $1,000 a month if you withdraw 5% each year. This simple rule is a good starting point, but you should consider factors like inflation for long-term planning.
How much money do you need invested to make $1000 a month? ›
To make $1,000 per month on T-bills, you would need to invest $240,000 at a 5% rate. This is a solid return — and probably one of the safest investments available today. But do you have $240,000 sitting around? That's the hard part.
