Is the S&P 500 All You Need to Retire a Millionaire?

Investors in the U.S. stock market typically follow major indexes: the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average. While all three are important in their own right, the S&P 500 has the largest amount of assets tracking its performance. By including 500 of the largest public U.S. companies by market cap, the S&P 500 has become the benchmark for the U.S. stock market. When people talk about the stock market’s performance broadly, they’re often referring to the S&P 500.

The S&P 500’s importance isn’t unwarranted, either. Containing industry leaders from every major sector, it’s one of the best gauges of how the overall economy is doing. As the overall U.S. economy goes, so goes the S&P 500 — which is often a good thing. If you’re wondering if there’s one investment that can help you retire a millionaire, look no further.

Data by YCharts.

Covering your bases

The S&P 500 is an index, but different companies put together their respective S&P 500 exchange-traded funds (ETFs) to mirror it. Here are some companies and their respective funds:

Vanguard: Vanguard S&P 500 ETF (NYSEMKT: VOO)
BlackRock: iShares Core S&P 500 ETF (NYSEMKT: IVV)
State Street Global: SPDR S&P 500 ETF Trust (NYSEMKT: SPY)

Since they track the same index, there isn’t much tangible difference between S&P 500 ETFs outside the expense ratio, which is charged annually as a percentage of your total investment. For example, the Vanguard S&P 500 ETF has a 0.03% expense ratio, but the SPDR S&P 500 ETF Trust’s expense ratio is 0.0945%.

S&P 500 ETFs are good go-to investments because they check three boxes off the checklist of the investing fundamentals: blue-chip stocks, diversification, and low cost. By themselves, all three of those are great to have while investing. Together, they’re a force primed to set investors up for long-term success in the stock market. It’s as close to a one-stop shop for investors as it gets.

The long-term results

Historically, the S&P 500 has returned around 10% annually over the long term. Past results don’t guarantee future performance, but if we assume this trend continues, here’s roughly how much you’d have if you invested $1,000 monthly for different time frames:

Years Invested
Amount Invested
Account Value

5
$60,000
$73,200

10
$120,000
$191,200

15
$180,000
$381,200

20
$240,000
$687,200

30
$360,000
$1.97 million

40
$480,000
$5.31 million

Data source: Author calculations. Rounded down to the nearest hundred.

As you see, the longer you invest, the larger the gap between how much you put away and how much your investments ended up worth. And that is because of the greatest force in investing: compound earnings.

Compound earnings happen when the return you get on your investments begins to generate return on itself. Imagine you earn 10% interest on a $1,000 investment one year and reinvest the gains. The next year, any interest earned will be on $1,100 instead of $1,000. It’s a moneymaking cycle. Looking to build wealth? Here’s one of the greatest tools in your arsenal.

The road to $1 million

If your goal is to hit the $1 million mark, two things can lead the way: time and consistency. Here’s how long it’d take you to cross the $1 million threshold with different monthly contributions, assuming 10% average annual returns:

Monthly Contributions
Years Until $1 Million
Amount Invested

$500
31
$186,000

$750
27
$243,000

$1,000
24
$288,000

$1,500
20
$360,000

$2,500
18
$432,000

Data source: Author calculations.

It won’t be all smooth sailing

Although the long-term results have been there, you shouldn’t be oblivious to the short-term swings you may have to endure along the way. More than anything, it’s important to understand that down periods are inevitable and not make shortsighted moves that go against your best long-term interest (like pause or stop investing).

Since its inception, the S&P 500 has had down years almost a quarter of the time. In 2022, the S&P 500 had its worst year since 2008, when the financial crisis caused the Great Recession. Some weeks, months, or years, it gets ugly — there’s no denying that. But if you’re focused on the long term, you can trust the S&P 500 to carry you to millionaire land.

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Stefon Walters has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

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