Millions of people might be surprised to learn that becoming a millionaire is a goal well within their reach — especially if they’re far from retiring. Those nearing retirement might become millionaires, but even if they don’t, they may still have time to beef up their net worth considerably.
Here’s how someone can become a millionaire. Act on these moves soon, and they’ll get get you to millionaire-hood faster.
How money grows — to millions
First off, understand that getting to $1,000,000 is largely a matter of math. The table below shows you just how money can grow for you:
Growing at 8% for
$7,000 invested annually
$15,000 invested annually
5 years
$44,351
$95,039
10 years
$109,518
$234,682
15 years
$205,270
$439,864
20 years
$345,960
$741,344
25 years
$552,681
$1,184,316
30 years
$856,421
$1,835,188
35 years
$1,302,715
$2,791,532
40 years
$1,958,467
$4,196,716
That glorious growth of wealth won’t happen on its own, though. It needs three inputs:
Contributions to investment accounts — ideally, regular and hefty ones.
Effective investments — ideally, market-meeting or market-beating ones.
Time — ideally, lots of it.
You may not be able to invest a lot each year these days, but if you have a long period in which your money can grow, that can make a big difference. And if you don’t have that many years before retirement, you may be able to turbocharge your nest egg’s growth by increasing your contributions.
Invest for growth — with index funds
So how, exactly, should you invest your long-term dollars? Well, it’s hard to beat a simple, low-fee index fund, which will get you roughly the same return as the index it aims to copy. Over long periods, the stock market has averaged returns close to 10% annually, so you can hope for that, while understanding that over your particular 10, 20, or 30 years, the average return may be higher or lower.
Here are three solid low-cost index funds, which also happen to be exchange-traded funds (ETFs):
SPDR S&P 500 ETF (NYSEMKT: SPY)
Vanguard Total Stock Market ETF (NYSEMKT: VTI)
Vanguard Total World Stock ETF (NYSEMKT: VT)
Respectively, these investments can have you instantly invested in roughly 80% of the U.S. stock market, the entire U.S. stock market, or just about all of the world’s stock market.
Investing with index funds is an easy but powerful investment strategy. It requires little to no homework — just regular infusions of money.
Aiming to beat the market
If you’d like to try to beat the market, you might add some carefully chosen healthy and growing dividend-paying stocks to your portfolio. Ideally, they will grow over the years while paying you increasingly large dividends. Some will grow slower than the overall market, though, so focus on ones you expect to grow relatively briskly.
Here’s what you can expect in dividend income per year. Remember that healthy and growing dividend payers will tend to increase their payout now and then, so over time you’ll collect more and more:
Portfolio Value
3% Average Dividend Yield
4% Average Dividend Yield
5% Average Dividend Yield
$100,000
$3,000
$4,000
$5,000
$250,000
$7,500
$10,000
$12,500
$500,000
$15,000
$20,000
$25,000
$750,000
$22,500
$30,000
$37,500
$1 million
$30,000
$40,000
$50,000
$1.5 million
$45,000
$60,000
$75,000
$2 million
$60,000
$80,000
$100,000
You might also look to add some growth stocks to your mix. (Note that growth stocks can also be dividend payers.) They are tied to companies with faster-than-average growth that can grow faster than the overall market in your portfolio — though they can fall harder than the overall market at times, too. Ideally, you’d buy into them when they’re undervalued or at least just reasonably valued.
Consider following The Motley Fool’s investing philosophy, which suggests buying 25 or more stocks and holding on to them for at least five years. This can give even overvalued stocks some time to grow into — and beyond — their intrinsic values.
If you’re going to be investing in individual stocks, whether dividend payers, growth stocks, or any others, be sure to read up on how to invest in stocks. Read a few good books on investing, too. The more you know, the better your investing results may be.
The $18,984 Social Security bonus most retirees completely overlook
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Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.