(Katie Brockman)
Retiring a millionaire is a big goal, but as retirement gets more expensive, you might need a million dollars or more to comfortably enjoy your retirement years.
However, it can be difficult to achieve millionaire status if you are a hands-off investor. Investing in individual stocks can help you beat the market and earn above-average returns, making it easier for you to save $ 1 million. But many investors don’t want to spend countless hours researching different stocks and managing their portfolios, so this approach isn’t for everyone.
Exchange Traded Funds (ETFs) make investing effortless because each fund can hold hundreds of different stocks. Can You Really Retire From A Millionaire By Investing Only In ETFs? It depends.
People also read …
Image source: Getty Images.
Choosing the right ETFs
The key to getting the most out of ETFs is to choose your investments wisely, balancing risk and return. Some ETFs have very low risk, but they also generate below-average returns. Others generate higher returns, but they are also more volatile. To retire as a millionaire, you will need to choose funds that can offer higher returns while limiting risk.
To choose the right ETFs, consider factors such as how long the fund has been in existence, its average annual return since inception, and the fund companies.
Keep in mind that average ETF returns are only part of the equation, so try to avoid choosing a fund just because it has grown faster than average. The best funds will also have a long history of consistent growth over time, and the fund’s stocks should come from companies that are fundamentally sound.
If an ETF has a significantly higher than average rate of return, that could be a red flag. These types of funds may only be around for a short time (and never have seen a substantial decline in the market) and they may consist of high risk stocks. While these funds are tempting, they can also be dangerous – you could potentially lose more than you gain in the long run.
How much can you earn with ETFs?
When in doubt, a sound investment choice is a S&P 500 ETF, like the Vanguard S&P 500 ETF (NYSEMKT: FLIGHT) or the IShares Core S&P 500 ETF (NYSEMKT: IVV).
S&P 500 ETFs consist of the same stocks as the S&P 500 Index itself, which is widely considered to be a strong representation of the stock market as a whole. This index has a very long history of rebounding volatility, making it a smart long-term investment.
In addition, it has historically achieved an average return of around 10% per year. This means that while the market will have good and bad years, its annual return should average around 10% over the long term.
Suppose you invest in an S&P 500 ETF that has an average annual return of 10% and you want to accumulate $ 1 million before you reach retirement age. Here’s roughly how much you’ll need to invest each month based on the number of years you have left to spare:
| Number of years | Amount invested per month | Total savings |
|---|---|---|
| 40 | $ 200 | $ 1.062 million |
| 30 | $ 550 | $ 1.086 million |
| 20 | $ 1,500 | $ 1.031 million |
| ten | $ 5,300 | $ 1.014 million |
Calculations by author via Investor.gov.
As with any investment, the more time you give your money to grow, the more you can potentially earn. By starting to invest now, it will be easier to accumulate at least $ 1 million in retirement.
Achieving millionaire status is not easy, but it is possible, even with ETFs alone. By starting as early in life as possible and investing as much as you can afford each month, you could be on your way to a million dollar portfolio.
10 stocks we prefer over the Vanguard S&P 500 ETF
When our award-winning team of analysts have stock advice, it can pay off to listen. After all, the newsletter they’ve been running for over a decade, Motley Fool Equity Advisor, has tripled the market. *
They just revealed what they think are the top ten stocks investors can buy right now … and Vanguard S&P 500 ETF was not one of them! That’s right – they think these 10 stocks are even better buys.
* Returns of the portfolio advisor as of December 16, 2021
Katie Brockman owns the Vanguard S&P 500 ETF. The Motley Fool owns and recommends the Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
