One of the most frequently recommended ways for people to invest in the stock market is to buy the S&P 500 index. With a low-cost S&P 500 index fund, you can own all 500 of the largest publicly traded companies in America. Just buying these 500 major names could be enough to make you a millionaire. That’s because the S&P 500 has delivered strong long-term returns.
In the 98 years since 1928, the S&P 500 has delivered annualized returns of about 10%. Keep in mind, that number includes some massive economic downturns during worldwide catastrophes like the Great Depression and World War II. Even with the dot-com bubble of 1999-2000, the global financial crisis of 2008, the pandemic of 2020, and other serious crises and short-term sell-offs, the S&P 500 has been one of the best places for people to put their money for almost 100 years.
One of the best ways to buy the S&P 500 is via a popular Vanguard exchange-traded fund (ETF). The Vanguard S&P 500 ETF (VOO +0.58%) is so well-known that it’s often referred to by its ticker (VOO). This fund has a shorthand investment strategy named after it called “VOO and chill.”
Let’s look at why “VOO and chill” could be a simple strategy to make you a millionaire with long-term investing.
Image source: Getty Images.
Vanguard S&P 500 ETF (VOO): 14.94% annualized returns since September 2010
The Vanguard S&P 500 ETF holds a total of 505 stocks and tracks the performance of the S&P 500 index. Just like the broad index it tracks, this ETF has delivered stellar returns in recent years. In the past (nearly) 16 years since VOO was established in September 2010, this S&P 500 ETF has delivered average annual returns of 14.94%. In the past five years, it’s delivered 12.82% annualized returns (by net asset value).
Both of those average returns are higher than the long-term stock market average return of 10% per year. This strong performance might not continue. The stock market could go into a bear market or fail to deliver such high growth in the future.
But let’s look at how VOO could make you a millionaire with a few different possible rates of return, based on its real-life past performance.
Today’s Change
(0.58%) $4.05
Current Price
$705.06
Key Data Points
AUM
$1.7T
Dividend Yield
1.04%
Expense Ratio
0.03%
Top Holdings
NVDA
7.55%
AAPL
7.05%
MSFT
5.36%
How VOO can make you a millionaire
Let’s say you can invest $300 per month, and you keep using that same $300 amount to keep buying shares of the Vanguard S&P 500 ETF (VOO) month after month. Let’s also assume that the fund delivers the same 98-year long-term average annual return of 10% per year.
At that 10% annualized rate of return, your money would grow to $57,375 after 10 years. After 20 years, you’d have $206,190. After 30 years, you’d have $592,178, and after 36 years, you’d have more than $1 million.
What if VOO could perform even better than that? Let’s assume that VOO can keep delivering the same return it did in the past five years: 12.82%. $300 per month invested at that rate of return would grow to $65,735 after 10 years. After 20 years, you’d have $285,346. After 30 years, you’d have more than $1 million.
What if VOO keeps up the same strong performance of the past 15 (almost 16) years? Let’s assume that the fund delivers the same 14.94% average annual return that it’s delivered for the past 15 (almost 16) years.
At that rate of return, $300 invested per month would grow to $72,880 after 10 years. In 20 years, you’d have $366,183, and after 27 years, you’d pass the $1 million mark.
Why invest in VOO?
There is no guarantee that any stock ETF or investment will deliver 10% or higher annual returns forever. But these are real numbers based on historic returns. The ultra-low 0.03% expense ratio, broad diversification, and simplicity show why the Vanguard S&P 500 ETF ranks among the best low-cost index funds.
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