Retiring a millionaire is a goal many workers share, and its a realistic target. The average worker expects to need around $2 million to retire comfortably, according to a 2020 survey from Charles Schwab.
Saving that much money can be daunting, though. It may also seem impossible to become a millionaire someday if youre earning an average salary.
The good news is that you dont need to be rich or a stock market whiz to become a millionaire. In fact, all you need is the S&P 500.
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How to invest in the S&P 500
The S&P 500 is a stock market index that includes 500 of the largest publicly traded companies in the United States. Most companies in this exclusive club are household names, including Amazon, Apple, Microsoft, and Googles parent company, Alphabet.
While you cant invest in the S&P 500 itself, you can invest in funds that closely track it -- such as S&P 500 ETFs or index funds. These include the same stocks as the S&P 500 itself, and theyre designed to mirror the indexs performance.
One of the biggest advantages of investing in an S&P 500 ETF or index fund is that youre less likely to lose money over the long run. The S&P 500 is considered a strong representation of the stock market as a whole, and the market has consistently experienced positive returns over time.
Keep in mind that this doesnt mean youll never experience losses. Like any investment, the S&P 500 is subject to volatility, and there will be some years where the losses outweigh the gains.
However, over time, the S&P 500 has proven that it can recover from even the worst market crashes. So even if you experience losses in the short term, its very likely youll earn positive returns over the course of a few decades.
Becoming a millionaire
Since its inception in 1957, the S&P 500 has earned an average rate of return of around 10% per year. Again, this doesnt necessarily mean youll earn a 10% return year after year, but over time, the positive and negative returns will likely average out to around 10% annually.
There are two key components to becoming a stock market millionaire: start saving early and invest consistently.
- Start saving early: The more time you have to save, the less youll need to save each month to become a millionaire. This is because compound interest helps your money grow faster the longer its left untouched. By starting now, compound interest will have a snowball effect on your investments, and your savings will grow exponentially.
- Invest consistently: You dont necessarily need to invest a lot of money to get rich in the stock market, but youll need to invest a few hundred dollars each month. The more consistently you invest, the more your savings will be able to grow.
Exactly how much youll need to invest depends on your timeline. Lets say you have a goal of saving $1 million and youre earning a 10% average annual rate of return on your investments. Heres approximately how much youd need to invest each month, depending on how many years you have left to save:
|Number of Years to Save||Amount Saved per Month||Total Savings|
Source: Authors calculations
The more time you have to save, the better. But if youre off to a late start, that doesnt necessarily mean your goal is out of reach. Regardless of how much you can afford to invest or how many years you have to save, its much better to start investing now rather than putting it off.
Once you do start investing in the S&P 500, all you need to do is sit back and watch your money grow. These funds are hands-off investments, meaning they perform best when theyre left alone for as long as possible. In other words, with S&P 500 funds, you can potentially retire a millionaire with next to no effort.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Katie Brockman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2022 $1920.0 calls on Amazon, long March 2023 $120.0 calls on Apple, short January 2022 $1940.0 calls on Amazon, and short March 2023 $130.0 calls on Apple. The Motley Fool has a disclosure policy.>
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