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How Long Does It Take to Build a $1 Million Portfolio by Investing in VOO? Here's What History Says.
Key Points
Most ordinary investors who have amassed a seven-figure nest egg never had a big lump sum to put toward the effort.
Rather, they continually contributed, even when it was difficult or inconvenient.
Every year you wait means you need to invest more to reach your goal.
Would you like to invest your way to $1 million? It's more possible than it might seem. It's not a matter of starting with an enormous amount of cash and then being a brilliant stock picker. The key, rather, is consistently contributing to the market's most reliable long-term investment for as long as you possibly can.
The investment in question is any fund that mirrors the S&P 500 index, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the SPDR S&P 500 ETF Trust (NYSEMKT: SPY). Although past performance is no guarantee of future results, it's not unreasonable to expect these index-based ETFs to match the index's historical average annual gain of 10%. Just know some years will be better than others. In a few of those years, you might even suffer losses. Keep the bigger picture in mind when that happens.
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As for how long it will take you to reach the seven-figure mark, that depends on how long you're able to make regular investments in VOO and SPY, and how much you're willing to invest along the way. Assuming you're starting with nothing, earning an annual average of 10% for just 10 years would require a monthly investment of about $5,000 in the Vanguard S&P 500 ETF. If you've got 20 years, though, you can achieve the feat by contributing a much less daunting $1,400 per month. And if you've got 30 years, a monthly investment of just $450 in an S&P 500 index fund would be enough to get you to $1 million. Clearly, time does most of the heavy lifting for investors (or at least it should).
These calculations are just for reference, of course, without any consideration of taxes, or the fact that time chips away at the buying power of any amount of money.
Still, there's an important fact hiding in plain sight with these projections. That is, starting sooner can make a world of difference, even if you're starting out small.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.