When you think about investing for the long term and creating a portfolio worth over $1 million, you may think it’s too difficult to do or that it might require a lot of money. But if you have many years to go before you retire, then a slow-and-steady approach can work, where your contributions can be more modest. Through the effects of compounding, they can result in a significant portfolio balance later on.
If you have 34 investing years to go before you retire, it’s possible to create a portfolio worth $1 million by saving just $10 per day and without having to take on significant risks along the way. Here’s how you can accomplish that.
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Invest in a fund that tracks the S&P 500
The S&P 500 index is a collection of the leading 500 companies on U.S. exchanges. It allows you to gain broad exposure to the overall market as it includes stocks from a wide range of sectors and industries. The breadth and depth of the index effectively make it a good gauge of the overall stock market and how it is performing.
There are many exchange-traded funds (ETFs) which enable you to mirror and track the index. A popular one is the SPDR S&P 500 ETF (SPY -0.33%). With a low expense ratio of 0.0945%, the fees that the fund charges aren’t significant, and they won’t prevent you from earning a great return. Historically, the S&P 500 has grown by an average of 10% per year. Mixed in to that are some bad years, but over the long haul, tracking the index has been an effective and easy way for investors to grow their wealth.
Invest regularly and watch that balance grow
You don’t have to actually invest every day for this strategy to work. Instead, you can pool your daily savings and invest every week or perhaps every month. The goal is to make the process consistent but also not feel like a chore to the point where it may be difficult to keep up with it. If you’re setting aside $10 per day to invest in stocks, that’s the equivalent of $70 per week.
Let’s assume that you decide to go with investing that money every week. If the SPY ETF grows by an average of 10% per year, here’s how your portfolio balance might look after a period of 30 years.
| Year | 10% Growth Rate |
|---|---|
| 30 | $693,942 |
| 31 | $770,683 |
| 32 | $855,486 |
| 33 | $949,199 |
| 34 | $1,052,759 |
| 35 | $1,167,198 |
Calculations and table by author.
You can see that by year 34, your balance would grow to more than $1 million under these assumptions. Your actual returns, however, will vary, and that will affect the size of your portfolio. But setting aside just $10 per day can be a way to set yourself up for significant gains in the long run. This is why investing for the long term can make it easy to minimize your risk while enabling you to build up a large portfolio balance.
Even if you’re not familiar with investing or don’t know what to invest in, putting money on a regular basis into an S&P 500 ETF such as SPY can be a good option. It’ll grow your portfolio steadily and allow you to benefit from the market’s overall growth. Rather than trying to beat the S&P 500 and pick individual stocks like many fund managers struggle to do, you can simply mirror it, and that can set you up for success.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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