How 1 Index Fund Can Lead You To Million Land | Smart change: Personal finance

How 1 Index Fund Can Lead You To Million Land |  Smart change: Personal finance

(Stefon Walters)

Reaching the $ 1 million threshold is a lifelong goal for many people and, frankly, as time goes on, it becomes more and more a necessity for many people to have at least that much saved for retirement. . Fortunately, getting a million dollars is a little easier than some might imagine; all it takes is consistency, time and a single index fund.

iShares Core S&P 500 ETF

What do you have S & P500 is an index that tracks the top 500 publicly traded U.S. companies. While the S&P 500 is an index, various financial companies raise their own S&P 500 funds to buy shares in the index. An S&P 500 index fund that can lead you to millionaire land is iShares Core S&P 500 ETF (NYSEMKT: IVV). It is one of the lowest cost indexed funds and, based on historical returns, can do a lot of the hard work for you.

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The fund holds shares in all components of the S&P 500, with the top 10 holdings accounting for 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 almost every industry you can imagine. The top five industries represented are:

  • Information technology (27.96%).
  • Medical care (13.58%).
  • Discretionary consumers (11.99%).
  • Finance (11.08%).
  • Communications (9.34%).

With a single fund, you realize one of the key pillars of investment (diversification), while investing in high-capitalization companies that are financially sound.

Let the combination do the work for you

Reaching $ 1 million in strict savings is almost impossible for most people. The real key to getting $ 1 million is to let time and the combination do most of the work for you. Historically, the S&P 500 has returned about 10% a year in the long run. Of course, some years it will be less, and other years it will be more, but overall 10% is a good benchmark to use.

If we assume that the iShares Core S&P 500 ETF will yield 10% per annum, here’s how much you would accrue in 30 years on various monthly contributions (taking into account the 0.03% spending rate of the fund):

Monthly contributions Annual yield (including taxes) 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

In this scenario, $ 500 a month – equivalent to the annual IRA contribution limit of $ 6,000 for people under 50 – is almost enough to make $ 1 million in 30 years. Even increasing the monthly contributions to $ 600 would be equivalent to over $ 1.17 million in 30 years. More than anything, this shows the power of time and how its combined effect can make the most of your investment earnings. At $ 600 a month, you would have personally invested $ 216,000 in the fund in 30 years, but your total would be $ 900,000 more than that amount.

Ensuring that you feel financially comfortable in retirement means consistency and discipline. In the short term, the results may seem minimal, and market declines may make you guess your investment choices, but being confident in the power of the S&P 500 and sticking to your plan is sure to produce long-term exponential results. run.

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Stefon Walters does not hold any position in any of the above actions. Motley Fool has no position in any of the aforementioned shares. The Motley Fool has a disclosure policy.

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