Aiming for a portfolio balance of at least $1 million by the time you retire is a great goal. Whether you want to slowly withdraw the money over the years or perhaps reinvest it into dividend stocks to generate a nice stream of recurring income, you’ll give yourself plenty of flexibility in your retirement years. Money may not be able to buy happiness, but one thing it does give you is options. And those options can make for a much more relaxing retirement.
If you don’t have a ton of money saved up, you can still get to $1 million if you just invest in the stock market each month. Below, I’ll break down different scenarios to show you how much you would need to invest depending on your expected annual return, and how many years you would be making monthly contributions.
If you’re investing money every month, one thing you won’t want to have to worry about is deciding which stock(s) to invest in. If you did that, it would eventually become a chore and it would be easy to break the habit. The best way to ensure you stay on track is to keep it simple. And the easiest way to do that is to find an exchange-traded fund (ETF) that can give you a collection of stocks that you like, and always put money in there. With an ETF, you won’t have to worry about picking or changing stocks over time. It’s a way of putting your strategy on autopilot.
The conventional option would be to invest in an ETF that mirrors the S&P 500. Since the index tracks 500 of the largest publicly traded companies and offers a great deal of long-term stability, it’s a go-to option for many risk-averse investors. Historically, it has averaged an annual return of around 10% — but there can and will be deviations from one year to the next. A good fund to consider in this case is the SPDR S&P 500 ETF Trust (NYSEMKT: SPY)
Alternatively, you may want to focus a bit more on growth stocks since they can have much more upside in the long run. You don’t want to be too risky here given that you’re talking about retirement savings. But the Vanguard Growth Index Fund ETF (NYSEMKT: VUG) is a solid option to consider that contains over 180 holdings, focusing on large-cap growth stocks. This approach involves taking on a bit more risk than just trying to mirror the overall market, but it can result in superior returns in the long run. Here’s how the two funds have performed over the past 10 years.
Once you’ve picked a fund, the next question is how much you should put in it every month. Ideally, you would invest as much as you can but it’s also important to have a number in mind to aim for, in hopes of reaching that $1 million mark.
