Do you dream of becoming a self-made millionaire, but you’re not a professional athlete or artist and your salary is just average? You’re not alone.
The good news is that you can become a millionaire through investing, even if you don’t have any special skills or a special income. And it doesn’t take much time either. You’re better off investing less time than most people. In fact, a one-time investment is all you need. The key is to make the most of the money you have, which means hanging on to it even when it doesn’t feel right to do so.
An investment that meets all the criteria is Vanguard Total Stock Market ETF (NYSE:MKT:VTI)As the name suggests, this is investing in the performance of the overall stock market.
Less is more, and simpler is better
Newer investors might be put off by this idea. It seems like it’s all about picking the winning stocks and avoiding the bad ones. The financial media and the securities industry also tend to encourage trading activity. It’s easy to get tempted by the “chasing of performance.”
But most investors aren’t making a ton of money that way, and in the long run, you’re better off buying and holding high-quality stocks for as long as you can, even if it means being a little nervous.
But which stocks to pick? It doesn’t matter. If you pick a small number of well-diversified quality stocks, a simple buy-and-hold strategy will pay off in the long run. In fact, Better More than most active investors.
Don’t believe me? Consider this: Over the past five years, about 79% of the large mutual funds available to U.S. investors have been insolvent, according to data compiled by Standard & Poor’s. S&P 500 (SNPINDEX: ^GSPC)Extending the time horizon to 15 years, 88% of these funds failed to keep up with their benchmarks. Goldman Sachs The report found that most hedge funds underperformed the overall market last year (again), with some funds losing money despite the overall market gains.
Think about that for a second: most highly paid and well-equipped fund managers not only failed to add value, but ultimately caused losses for their clients because other investments they could have easily owned underperformed.
Take a hint: if these pros are struggling to beat the market, maybe amateurs shouldn’t try as hard.
But the question remains: is Vanguard Total Stock Market ETF a millionaire-making option?
Putting the Vanguard Total Stock Market ETF to the Test
This question actually misses the point: how much money are you working with now, and how much more money do you plan to add in the future?
But let’s start by answering this overarching question by acknowledging that, odds-wise, a broad-based index fund like the Vanguard Total Stock Market ETF is your best bet. When you own shares in this exchange-traded fund, you’re holding a market-capitalization-weighted portion of stocks listed on roughly 3,700 exchanges in the U.S. This ETF is guaranteed to keep pace with the overall stock market. teeth Lower than the market average. The fund’s expense ratio is also close to zero at 0.03%, meaning that Vanguard’s fees for managing the ETF will have a negligible impact on your net returns.
More importantly, the fund is delivering the returns you’d expect from a total stock market fund: an average annual return of 12.2% over the past 10 years. LuciferThis figure has risen to 14.4% over the past 15 years.
However, to be conservative, let’s assume that the lower of these two numbers is a repeatable standard. So how does a beginner reach $1 million in assets? It depends. If you can work for 30 years, investing $300 per month ($3,600 per year) in ETFs will be enough. However, most people will not last 30 years before they start to dip into this savings. If you can only work for 20 years, you will need to allocate a large amount of funds to this option: $1,000 per month ($12,000 per year). And if you can only work for 10 years, you will need $4,500 per month or $54,000 per year.
Obviously, most of this compound growth will occur in the latter stages of the period in question, which is why starting as early as possible will pay off so much.
Of course, steady savings over time aren’t the only way to build a seven-figure fortune. Assuming the Vanguard ETF continues to perform the way it has since its inception in 2001, a $27,000 investment today might be worth $1 million in 30 years. But if you want $1 million in 15 years, you’ll probably need to put $170,000 into the ETF now.
It’s not about ETFs, it’s about you
Of course, past performance is no guarantee of future results, and something could change that could hurt this ETF’s future returns.
It is also worth pointing out the following alternatives: SPDR S&P 500 ETF Trust (NYSE: SPY) And that Invesco QQQ Trust (Nasdaq: QQQ) It could deliver similar results. The Vanguard Total Stock Market ETF is an attractive choice simply because it has a slightly better long-term track record than the S&P 500. That could be because it invests in faster-growing mid- and small-cap stocks. However, the Vanguard fund’s performance has generally lagged behind that of the Invesco QQQ Trust.
In reality, most index funds are basically in the same ballpark when it comes to long-term performance, and this fund is no exception.
This means that a particular ETF’s potential to create millionaires has less to do with the fund itself and more to do with what you do with the fund. Invesco QQQ Trust and SPDR S&P 500 ETF Trust are also millionaire-creating ETFs if you put enough money into them and then, most importantly, leave them alone for years. Whatever ETF you choose, let time take its toll.
Should I invest $1,000 in Vanguard Index Funds – Vanguard Total Stock Market ETF right now?
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James Brumley has no investment in any of the stocks mentioned. The Motley Fool invests in and recommends Goldman Sachs Group, Vanguard Index Fund and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
Will the Vanguard Total Stock Market ETF Create Millionaires? was originally published by The Motley Fool.
