Building a portfolio worth $1 million or more may sound like an impossible goal that’s reserved only for the wealthiest workers. However, while not everyone will be able to reach millionaire status, the strategy for getting there is simpler than you might think.
There are two key factors to reaching $1 million in savings: Invest in the stock market, and get started as soon as possible. Here’s exactly how to get there.
Don’t just save — invest
One of the simplest and most effective ways to supercharge your wealth is to invest in the stock market. While many people may be hesitant to invest because of the risks involved in the market, stashing your money in a savings account could actually hurt you even more in the long run.
Most savings accounts — even high-yield accounts — offer dismal interest rates compared to what you could earn in the stock market. Right now, interest rates are at record highs. Yet even the highest-yielding accounts only offer rates of around 5% per year or less.
Meanwhile, the stock market as a whole has averaged returns of around 10% per year over the last several decades. While you likely won’t earn 10% returns each and every year, the highs and lows have historically averaged out to around 10% annually.
The difference between 5% and 10% annual returns may not sound like much, but it adds up. If you were to contribute, say, $200 per month earning 5% annual interest, you’d have around $115,000 after 25 years. At a 10% average annual return, that $200 per month would add up to around $236,000 in the same amount of time.
Keep in mind, too, that 10% returns are in line with the market’s average. If you’re able to put the time and effort into building a customized portfolio full of powerhouse stocks, you could earn much higher-than-average returns.
Get started investing now
If you can’t afford to invest much right now, it may seem smarter to wait until you have more money to contribute. However, time is your most valuable resource. Waiting even a year or two can make it far more difficult to reach your goal, so it’s wise to start investing as soon as you possibly can.
For example, say you want to reach $1 million in total savings, and you’re earning a 10% average annual return on your investments. At that rate, here’s approximately how much you’d need to invest each month, depending on how many years you have to let your money grow:
|
Number of Years |
Amount Invested per Month |
Total Portfolio Value |
|---|---|---|
|
20 |
$1,500 |
$1.031 million |
|
25 |
$850 |
$1.003 million |
|
30 |
$525 |
$1.036 million |
|
35 |
$325 |
$1.057 million |
|
40 |
$200 |
$1.062 million |
Data source: Author’s calculations via investor.gov.
The fewer years you have to invest, the more difficult it will be to grow your savings to $1 million or more. Even if you can’t afford to invest hundreds of dollars per month right now, it’s still a good idea to get started anyway. If you’re able to save more later, that’s fantastic. But if not, you’re still better off investing whatever you can to take full advantage of the time you have.
Again, a robust portfolio can help make your goals more achievable. While it’s best to avoid short-term investments that promise to make you rich overnight, there are plenty of safer long-term stocks that can help you beat the market while still protecting your money. With a healthy portfolio full of strong stocks, you could earn far more than you might think over time.
Don’t miss this second chance at a potentially lucrative opportunity
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*Stock Advisor returns as of June 10, 2024
The Motley Fool has a disclosure policy.
This Is Hands-Down the Easiest Way to Retire a Millionaire was originally published by The Motley Fool
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