How 1 Index Fund Can Lead You to Millionaire Land

Achieving the $1 million mark is a lifelong goal for many people, and honestly, as time goes by, it’s becoming more of a necessity for many people to have at least that much saved up for retirement. Luckily, achieving $1 million is a bit easier than some may imagine; all it takes is consistency, time, and one index fund.

iShares Core S&P 500 ETF

The S&P 500 is an index that tracks the 500 largest publicly traded U.S. companies. While the S&P 500 is an index, different financial companies put together their own S&P 500 funds that buy the stocks in the index. One S&P 500 index fund that can lead you to millionaire land is the iShares Core S&P 500 ETF (NYSEMKT: IVV). It’s one of the lower-cost index funds, and based on historical returns, it can do a lot of the heavy lifting for you.

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The fund owns shares of all of the S&P 500’s constituents, with the top 10 holdings making up 29.39% of the fund. One of the key benefits of investing in the fund is the instant diversification you receive. It has companies in virtually any sector you could imagine. The top five industries represented are:

  • Information technology (27.96%).
  • Healthcare (13.58%).
  • Consumer discretionary (11.99%).
  • Financials (11.08%).
  • Communication (9.34%).

With just one fund, you accomplish one of the key pillars of investing (diversification), while also investing in large-cap companies that are financially sound.

Let compounding do the work for you

Getting to $1 million by strictly saving is all but impossible for most people to do. The real key to achieving $1 million is letting time and compounding do most of the work for you. Historically, the S&P 500 has returned around 10% annually in the long term. Of course, some years, it’ll be less, and other years, it’ll be more, but generally speaking, 10% is a good benchmark to use.

If we assume the iShares Core S&P 500 ETF will return 10% annually, here’s how much you would have accumulated in 30 years at different monthly contributions (accounting for the fund’s 0.03% expense ratio):

Monthly Contributions Annual Return (Including Fees) Account Value After 30 Years
$500 9.97% $981,000
$600 9.97% $1.17 million
$750 9.97% $1.47 million
$1,000 9.97% $1.96 million

Calculations by author.

In this scenario, $500 per month — which equals the $6,000 annual IRA contribution limit for people under 50 — is almost enough to accomplish $1 million in 30 years. Even upping the monthly contributions to $600 would equal over $1.17 million in 30 years. More than anything, this shows the power of time and how its compounding effect can make up the bulk of your investment gains. At $600 monthly, you would have personally invested $216,000 into the fund in 30 years, yet your total would be $900,000 more than that amount.

Making sure you’re financially comfortable in retirement is all about consistency and discipline. In the short term, the results may seem minimal, and downturns in the market may have you second-guessing your investment choices, but being confident in the power of the S&P 500 and sticking to your plan is sure to produce exponential results in the long run.

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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.