Whether you're new to the stock market or an experienced investor, you probably want to make as much money as possible. But the market can be volatile, and if you invest in the wrong places, you could easily lose more than you gain.
While there are never any guarantees in the stock market, there's one investing strategy that's likely to help you make money over time. Stay at it long enough, and you could even become a millionaire investor.
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Investing for the long term
Investing in the stock market is not a "get rich quick" scheme, and short-term strategies could cost you. Instead, you're better off investing for the long term.
Long-term investing involves buying solid investments and holding them for as long as possible. Stocks of strong companies are likely to increase in value over time and survive market volatility. By filling your portfolio with these types of investments, you'll be gradually building wealth.
There are plenty of long-term investments to choose from. If you enjoy researching companies, investing in individual stocks may be the right option for you. But if you'd rather take a hands-off approach, you might decide to invest in S&P 500 index funds.
How S&P 500 index funds could make you a millionaire
An S&P 500 index fund is a collection of stocks that track the S&P 500 index itself. In other words, you're instantly buying around 500 stocks in a single investment.
S&P 500 index funds are relatively safe investments because they include stocks from some of the largest and strongest companies in the U.S. Many of the companies in the S&P 500 are household names, including Amazon, Apple, Microsoft, and Google's parent company, Alphabet. These businesses are likely to grow over time, and they also have a good chance of bouncing back after market crashes.
Since its inception in 1959, the S&P 500 has earned an average rate of return of around 10% per year. Of course, it has experienced many ups and downs in that time. However, while it doesn't experience 10% returns year after year, the highs and lows average out over time.
By investing consistently, it's possible to become a millionaire with S&P 500 index funds. Say, for example, you're investing $350 per month while earning a 10% average annual rate of return. After 35 years, you'd have around $1.138 million in savings.
The more time you have to save, the less you'll need to save each month to become a millionaire. For instance, if you have 40 years to save and are earning a 10% average annual return, you'd only need to invest around $200 per month to reach $1 million in savings.
Helping your money grow faster
It does take time for your money to grow, but when it comes to the stock market, slow and steady wins the race.
S&P 500 index funds are also some of the most effortless investments out there, making them perfect for hands-off investors. You never need to worry about picking stocks or deciding whether it's time to sell your investments. In fact, the more you leave your investments alone, the faster your money will grow.
When it comes to choosing S&P 500 index funds, you have plenty of options. A few of the most popular funds include the Vanguard S&P 500 ETF (NYSEMKT:VOO), iShares Core S&P 500 ETF (NYSEMKT:IVV), and SPDR S&P 500 ETF Trust (NYSEMKT:SPY).
It's possible to become a millionaire by investing in the stock market, but it's important to have the right strategy. By buying solid investments and holding them for the long term, you can earn more than you may think.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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July 22, 2021 at 05:00PM
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