Investing every month in the stock market is a great way to build up your portfolio over time. The earlier your start, the lower your monthly contributions need to be in order for you to reach your savings goals. But you can start later in life and make larger monthly contributions to catch up too. While that’s not ideal, it may be more realistic as most people’s earnings increase with age, and it may be years into your career before your financial position is strong enough to regularly contribute to a portfolio.
While time and consistency are the building blocks of success in the stock market, you may be wondering just how much you need to invest each month to reach the $1 million milestone. Below, I’ll go over a few scenarios based on a 25-year timeline and offer a tip on how you can boost your returns long-term.
Over the last century, the S&P 500 has produced an annualized total return of just over 10%. But the market is coming off an incredible stretch since the financial crisis of 2008 and 2009 with a 15-year annualized total return of 13.9%, so it’s important to factor in the possibility of a slowdown going forward.
The table below shows the monthly investment needed to build a $1 million portfolio over 25 years assuming the market delivers an annualized return between 8% and 10%.
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Monthly Payment Needed to Get to $1 Million in 25 Years |
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|---|---|---|---|
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Expected Annualized Total Return |
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8% |
9% |
10% |
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Monthly Investment |
$1,051 |
$892 |
$754 |
Data source: Calculations by author.
As you can see, the necessary contribution fluctuates significantly based on the market’s performance — a 2 percentage point difference means having to invest around $300 more (or less) per month.
With that in mind, an investor who wants their portfolio to mirror the S&P 500 can tap into an exchange-traded like the SPDR S&P 500 ETF Trust, which tracks the index at a low cost.
While an S&P 500 ETF is the default option for millions of investors, there are funds that have outperformed the market in recent years and may continue to do so. If you’re willing to take on more risk in exchange for greater upside potential, you can increase your exposure to growth stocks. One option is the Vanguard Growth Index Fund ETF (NYSEMKT: VUG), which has trounced the S&P 500 over the past decade.
There is, of course, no guarantee this trend will continue, but the fund’s focus on the largest growth stocks in the country could tilt the odds in your favor. The ETF contains around 180 stocks, but it has significant exposure to tech companies, which make up 59% of all its holdings.
