Reaching $1 million by investing in the stock market is a dream that many people share, and it is more achievable than it seems.
You don’t have to be a stock market expert or invest thousands of dollars a month to become a millionaire, but you do need the right strategy. The investments you choose will have a huge impact on how much you can accumulate, and the sooner you start, the better.
Ready to start building wealth in the stock market? This is exactly what it takes to reach $1 million or more.
Choosing the right investments
The first step is to decide where to invest. This will largely depend on your personal preferences and goals.
If you’re willing to put in some extra time and effort in exchange for potentially higher returns, individual stocks can be a smart option. You’ll need to research the companies you’re interested in, stay abreast of industry trends, and ensure your portfolio is sufficiently diversified. But that extra effort could lead to much higher income on average.
Just make sure you invest in quality companies with solid underlying fundamentals. Shaky companies will have a hard time recovering from a recession, but if you invest in healthy stocks, your investments have a much better chance of long-term growth.
On the other hand, if you prefer a more hands-off investment that requires very little effort, you can consider a S&P500 ETF or another index fund may be a better fit.
With this type of investment, all shares have already been selected for you. Each fund will contain dozens or even hundreds of stocks bundled into a single investment, taking all the guesswork out of where to invest.
In particular, funds that track the S&P 500 also tend to be safer than individual stocks. However, they also often achieve a lower return.
There is no right or wrong answer to the question of where you should invest. If you’re willing to put in more effort and take on a little more risk for the chance of higher returns, individual stocks may be your best bet. But if you want a safer option with less maintenance (even if it means earning lower returns), an S&P 500 ETF or index fund may be a better option.
How much do you need to invest to reach $1 million or more?
Of course, your actual earnings will depend on how the market performs. That said, it is still possible to get a rough estimate of how much you need to invest each month to reach millionaire status.
No matter where you invest, time is your greatest asset when building wealth in the stock market. Thanks to compound growth, your money will grow faster the more time it has to accumulate. So it is wise to start investing sooner or later.
For simplicity’s sake, let’s assume you invest in an S&P 500 ETF and earn an average annual return of 10% – which is in line with the market’s historical average. At that rate, here’s what you would need to invest each month, depending on how many years you have to save:
|Couple of years
|Amount invested per month
|Total portfolio value
Again, these numbers assume you earn returns in line with the market’s historical average. If you have chosen to invest in individual stocks and those stocks are performing well, you could potentially earn much more than this.
There isn’t necessarily a right or wrong way to invest, as your strategy depends on your personal preferences. But by investing in the right places, getting started as early as possible, and maintaining a long-term view, you’ll be on your way to becoming a stock market millionaire.
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