When it comes to investing, many people start small and manage to grow a lot of wealth over time. That approach requires patience, but the great thing about it is that it’s accessible to anyone — including people without a ton of money to invest.
If your goal is to become a millionaire, the good news is that you don’t have to become a stock-picking wiz, nor do you have to throw a ton of money into something risky like cryptocurrency and hope for the best. Rather, there’s one smart investment that could be your ticket to millionaire status in your lifetime that doesn’t involve continuous legwork or undue risk.
Rely on the broad market’s performance
You’ll often hear that successful investors maintain diverse portfolios, owning stocks across a wide range of market segments. If you want to follow in their footsteps, you could research numerous stocks and assemble a portfolio of dozens.
Or you could simplify the process by buying S&P 500 index funds.
The reason it pays to load up on S&P 500 index funds in your portfolio is that you’re effectively investing in the broad market. If the market on a whole does well, so do you. If the stock market crashes, your investments will take a temporary hit until things recover. But all told, buying S&P 500 index funds is a great way to maintain a diverse investment mix without spinning your wheels researching stocks and tracking their performance.
Furthermore, the S&P 500’s average annual return between its inception in 1926 and 2018 is roughly 10% to 11%. Between 1957 and 2018, it’s about 8%.
This doesn’t mean that the index has done well every year. Rather, these are averages based on highs and lows.
If you were to invest $500 a month in S&P 500 index funds at an average annual 8% return over a 40-year period, you’d end up with $1.5 million. Make it $700 a month, and you’re looking at almost $2.2 million.
Patience is key
Putting the bulk of your money into S&P 500 index funds isn’t going to make you a millionaire overnight or even within a few years. But if you’re willing to be patient and take a long-term approach to building wealth, you may enjoy a lot of success with S&P 500 index funds — and without the stress of having to actively maintain a portfolio regularly.
This isn’t to say that if you load up on S&P 500 index funds, you should never glance at your portfolio. You should always keep tabs on how your investments are performing.
Plus, you may decide to add individual stocks to your personal mix on top of broad index funds, and that’s certainly not a bad call. But if you want a simplified path toward millionaire status, S&P 500 index funds are a great bet.
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