Investing in the stock market is a fantastic way to supercharge your net worth, and it's possible to build a million-dollar portfolio even if you're a beginner.
Exactly how much you'll need to invest each month to achieve this goal depends on where you choose to invest. Building a personalized portfolio of individual stocks can help you earn higher-than-average returns, but this approach often requires more time and research.
For a simpler option, you may choose to invest in a broad-market index fund or ETF, such as an S&P 500 ETF. This type of investment can offer more predictable long-term returns, making it easier to set monthly saving goals.
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Building wealth with an S&P 500 ETF
Let's say you choose to invest in an S&P 500 ETF with a goal of reaching $1 million. This type of fund can be a fantastic option for both experienced investors and beginners, and it boasts a slew of advantages.
For one, it's easier to build a well-diversified portfolio with just one investment. All S&P 500 ETFs track the S&P 500 index (^GSPC 0.11%) itself, and this index contains stocks from 500 of the largest companies in the U.S. across nearly a dozen industries -- from technology to financials to energy and more.
By investing in just one S&P 500 ETF, you'll own a stake in all of the stocks within the index -- instantly diversifying your portfolio with next to no effort. This can save you loads of time, as you won't need to research every individual stock you're considering buying.
S&P 500 ETFs can also be safer than many other types of investments. While no investment is guaranteed to see positive returns over time, the S&P 500 has a decades-long track record of surviving even the most severe crashes, recessions, and bear markets.
The index is so successful at recovering from downturns, it can actually be harder to lose money over time with this investment. Analysts at Crestmont Research discovered that throughout the S&P 500's history, there's never been a single 20-year period that ended in negative returns -- meaning that no matter when you'd invested, you'd have made money as long as you held your investment for 20 years.
Reaching $1 million or more
Again, your actual returns will depend on where you invest and how the market fares going forward. But to see what it might take to reach $1 million, let's look at a couple of different scenarios.
Historically, the stock market has earned an average rate of return of around 10% per year. While you're unlikely to see 10% returns every single year, the annual highs and lows have averaged out to roughly 10% per year over decades.
If you choose to invest in individual stocks or a different type of fund (such as a growth ETF, for example), you could potentially earn more. For simplicity's sake, let's say you could earn 13% average annual returns with this approach.
If you're aiming to reach $1 million in total, here's what you'd need to invest each month depending on how many years you have to save and what type of returns you're earning.
| Number of Years | Monthly Investment to Reach $1 Million: 10% Avg. Annual Return | Monthly Investment to Reach $1 Million: 13% Avg. Annual Return |
|---|---|---|
| 20 | $1,500 | $1,050 |
| 25 | $875 | $550 |
| 30 | $525 | $300 |
| 35 | $325 | $160 |
Source: Author's calculations via investor.gov.
Of course, earning higher returns can make it easier to achieve $1 million. However, time can have an even bigger impact on your portfolio. The sooner you get started, the less you'll need to contribute each month to reach your goal.
Building a million-dollar portfolio takes time and consistency, but it's doable for many people if you can begin investing as early in life as possible. With a long-term outlook, you could earn more than you might think.
