How 1 Index Fund Can Lead You to Millionaire Land

Reaching the million dollar mark is a lifetime goal for many people, and honestly, over time it becomes more and more necessary for many people to have at least that much saved for retirement. Fortunately, hitting $1 million is a little easier than some might think; all it takes is consistency, time and an index fund.

iShares Core S&P 500 ETF

the S&P500 is an index that tracks the 500 largest publicly traded US companies. While the S&P 500 is an index, different financial companies have set up their own S&P 500 funds that buy the stocks in the index. An S&P 500 index fund that can take you to millionaire land is the iShares Core S&P 500 ETF (IVV 2.44%). It’s one of the cheapest index funds, and based on historical returns, it can do a lot of the work for you.

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The fund holds stocks of all constituents of the S&P 500, with the top 10 holdings accounting for 29.39% of the fund. One of the main advantages of investing in the fund is the instant diversification you get. It has businesses in virtually every industry you could imagine. The top five industries represented are:

  • Information Technology (27.96%).
  • Health (13.58%).
  • Consumer Discretionary (11.99%).
  • Financial (11.08%).
  • Communications (9.34%).

With a single fund, you achieve one of the main pillars of investing (diversification), while also investing in financially sound large-cap companies.

Let composition do the work for you

Achieving $1 million by strictly saving is next to impossible for most people. The real key to hitting $1 million is letting time and capitalization do most of the work for you. Historically, the S&P 500 has returned around 10% per year over the long term. Of course, some years it will be less, and some years it will be more, but generally speaking 10% is a good benchmark to use.

If we assume that the iShares Core S&P 500 ETF will return 10% per year, here is how much you would have accumulated over 30 years at different monthly contributions (taking into account the fund’s 0.03% expense ratio):

Monthly contributions Annual declaration (fees included) Account value after 30 years
$500 9.97% $981,000
$600 9.97% $1.17 million
$750 9.97% $1.47 million
$1,000 9.97% $1.96 million

Author’s calculations.

In this scenario, $500 a month—equivalent to the $6,000 annual IRA contribution limit for those under 50—is almost enough to accomplish $1 million in 30 years. Even increasing monthly dues to $600 would equate to more than $1.17 million over 30 years. More than anything, it shows the power of time and how its cumulative effect can be the bulk of your investment gains. At $600 per month, you would have personally invested $216,000 in the fund over 30 years, but your total would be $900,000 more than that amount.

Making sure you are financially comfortable in retirement is a matter of consistency and discipline. In the short term, results may seem minimal and market declines may cause you to question your investment choices, but having confidence in the power of the S&P 500 and sticking to your plan is sure to produce exponential results at any time. long term. Course.

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