You may think that growing your portfolio to $1 million or more is unfeasible and too difficult to do. But if you aim for small profits and savings, it becomes a much more plausible scenario to imagine. Eating out less, switching utility or cell phone providers, or buying store-brand products instead of the big brands are some ways you can make additional savings on a regular basis.
Just saving and investing €10 a day can be enough to eventually lead to a portfolio that grows to at least €1 million. Here’s how that can work.
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When you think about having to save and invest $3,650 a year, that amount can seem difficult, especially considering inflation. But if you break it down into smaller chunks and aim to save $300 per month or $10 per day, it can be much more achievable. And it also puts into perspective how expensive these seemingly innocent and modest everyday expenses can be. Depending on how much you spend on coffee or eating out each day, avoiding some of these costs or trading up for cheaper options could be enough to help you realize that much savings.
And if you can save $3,650 a year and do so over the long term, then you’re well on your way to building a strong retirement fund. After saving so much for twenty years, you have set aside €73,000. And after 30 years the total would be almost $110,000. That’s nowhere near $1 million, but this is where investing in those savings can make a huge difference.
If you can save $10 a day or about $300 a month, you’re better off putting that money to work right away. That means putting it into an exchange-traded fund (ETF) that can help you grow your savings without much risk. ETFs provide good diversification and can allow you to earn great long-term returns.
An ETF that is popular with growth investors is the Vanguard Growth Index Fund ETF (NYSEMKT: VUG). As the name suggests, it focuses on growth stocks. There are 183 stocks in the fund, with the bulk of the allocation in technology stocks representing almost 58% of the fund’s portfolio. Consumer discretionary stocks are the second largest sector, accounting for more than 18% of the Vanguard fund’s investments. By bringing you a diverse mix of the world’s best growth stocks, including Nvidia And Amazonthe fund can be a great place to invest money every month, especially considering its razor-thin expense ratio of just 0.04%.
Over the past twenty years, the fund has generated a total return (including dividend payments) of over 900% and has easily outperformed the S&P500.
The Vanguard ETF’s approximately 920% return over the past twenty years equates to a compound annual growth rate (CAGR) of approximately 12.3%. By comparison, the S&P 500 averages a CAGR of about 10.7%.
Assuming these interest rates hold up over the long term, here’s how a $10/day or $300/month investment in the Vanguard fund would grow over the years, and how that would compare to just a reflection of the S&P 500.
|
Years invested |
Vanguard ETF |
Fund that mirrors the S&P 500 |
|---|---|---|
|
10 |
$70,240 |
$63,979 |
|
15 |
$154,213 |
$132,647 |
|
20 |
$309,049 |
$249,618 |
|
25 |
$594,546 |
$448,867 |
|
30 |
$1,120,967 |
$788,267 |
Calculations by author.
While it may seem like a modest difference in growth rates, the difference in balances over a very long period of time can prove to be significant. This is why investing in the growth-oriented Vanguard fund can be particularly powerful. Its potential to outperform the S&P 500 can make it an ideal place to allocate your savings on a regular basis.
However, it is important to remember that future returns are never a guarantee and that they are likely to be different from the above estimates. But by investing in growth stocks, you can give yourself a great chance of success at outperforming the market in the long term.
Consider the following before purchasing shares in Vanguard Index Funds – Vanguard Growth ETF:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Nvidia, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has a disclosure policy.
Here’s how saving $10 a day for 30 years can create a $1 million portfolio. originally published by The Motley Fool
