I’m a big fan of investing in individual stocks. At the time of this writing, I own about 35 individual stocks in my portfolio, and I believe it’s entirely possible for active investors to beat the market over long periods of time.
However, that doesn’t mean you need to own individual stocks to create wealth over time. In fact, although I own a bunch of individual stocks, I have a large portion of my portfolio in low-cost index funds, including the Vanguard S&P 500 ETF (NYSEMKT: VOO).
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »
In any given year, the S&P 500‘s performance can vary dramatically. In fact, since 1965, the S&P 500 has produced total returns as high as 38% or as low as negative 37%. But over long periods, the S&P 500 has produced 9%-10% annualized returns depending on the exact period you’re looking at.
And you might be surprised at how much wealth the average person can create by simply investing early and regularly in the S&P 500. As legendary investor Warren Buffett has said, “It is not necessary to do extraordinary things to get extraordinary results.”
How much would $1,000 per month invested in the S&P 500 grow?
Of course, while the S&P 500 has been a reliable wealth creator over very long periods of time, there’s no way to predict its performance with complete accuracy. If you’re investing over a 30-year period, it’s impossible to know exactly what kind of annualized returns you’ll achieve.
VOO Total Return Level data by YCharts.
So, for the purposes of this discussion, we’ll assume that the S&P 500 will average 9.5% annualized total returns for the entire time you’re invested. Some years, it will be more, some less, but we’ll assume that over the three-decade period, you’ll get this. (Note: This is a historically conservative assumption. Since 1965, the S&P 500 has averaged 10.2% total returns.)
We’ll also assume that you will reinvest any dividends you receive along the way.
With that in mind, if you were to invest $1,000 per month ($12,000 per year) into an S&P 500 index fund at a 9.5% growth rate, here’s how your money could grow over time:
|
Time |
Total Amount Invested |
Ending Value at 9.5% CAGR |
|---|---|---|
|
5 years |
$60,000 |
$72,535 |
|
10 years |
$120,000 |
$186,724 |
|
15 years |
$180,000 |
$366,483 |
|
20 years |
$240,000 |
$649,467 |
|
30 years |
$360,000 |
$1,796,250 |
Data source: Author’s own calculations. Assumes a 9.5% compound annual growth rate (CAGR) and dividend reinvestment.
How much dividend income will this produce?
In short, if you put $1,000 into an S&P 500 index fund every month and achieved a 9.5% annualized return, you’d end up with about $1.8 million after 30 years.
As of Jan. 2025, the dividend yield of the Vanguard S&P 500 ETF is about 1.2%, which is very low from a historical perspective thanks to the current concentration in mega-cap tech stocks that generally pay little or no dividends. But even at this low yield, a $1.8 million investment would produce $21,600 per year in dividend income.
However, the S&P’s median dividend yield since 1960 is about 2.9%. While there’s no way to know what the S&P 500’s dividend yield will be in 30 years, using this historical average would mean that a $1.8 million investment would produce about $52,200 in annual dividend income.
Of course, this analysis made a lot of assumptions. And it’s important to point out that in 30 years, or whenever you reach retirement age, you likely won’t continue to keep all your money invested in stocks. Smart asset allocation would involve gradually moving some of your money into fixed-income instruments, like bonds and CDs, which generally have higher yields and are more stable.
But the point of this is to show the long-term compounding power of a seemingly boring investment and how it’s entirely possible to retire with millions of dollars (or much more) without learning stock analysis or doing much homework.
Should you invest $1,000 in Vanguard S&P 500 ETF right now?
Before you buy stock in Vanguard S&P 500 ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $874,051!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of January 21, 2025
Matt Frankel has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.