Investing $10 per day can potentially make you a millionaire over time, according to calculations presented in the article.
Investing $10 a Day to Become a Millionaire: A Guide to Retirement Planning
Investing a small amount each day can lead to significant wealth accumulation over time. A popular strategy for retirement planning is investing $10 per day in a low-cost S&P 500 index fund, such as Vanguard’s.
By investing $10 daily, or approximately $3,650 annually, assuming an average annual return of about 10%, typically takes around 38 years to accumulate $1 million through compound growth. This timeframe can be shorter if the rate of return is higher.
The S&P 500 index fund is a collection of 500 of the largest and most established companies in the U.S. stock market. The Vanguard S&P 500 ETF's ticker symbol is VOO.
The Vanguard S&P 500 ETF has an expense ratio of 0.07%, making it a cost-effective choice for long-term investors. Another option is the Vanguard Russell 1000 Growth ETF, which has delivered an average annual return of 16.79% since its inception in 2010. If this ETF delivers the same average return going forward, you could still invest $10 per day and be a millionaire in less than 27 years.
It's important to note that the 10% figure includes dividends reinvested and is based on the long-term historical average return of the S&P 500. Inflation reduces the purchasing power of money over time, and the S&P 500's inflation-adjusted total return over the long term has been around 6.9%.
Taxes on investment gains and dividends can reduce the effective growth rate. Using tax-advantaged accounts such as IRAs or 401(k)s can shield investments from taxes until withdrawal, preserving growth potential.
Starting early is crucial for retirement planning. A person who plans to retire at the Social Security full retirement age of 67 and starts investing $10 per day at age 29 would have enough for retirement. Resisting the temptation to try to time the market and investing regularly is critical to success.
Warren Buffett recommends investing 90% of inherited cash in low-cost S&P 500 index funds, such as Vanguard’s. The S&P 500 index fund suggested by Buffett is the Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX).
Withdrawing money along the way can hinder the growth of the investment. If you only have 10 years until retirement, you'll need to invest significantly more, almost $57,500 per year, to build $1 million, assuming a 10% return. If you have 20 years until retirement, you'll need to invest around $16,000 each year to build $1 million, assuming a 10% return.
In summary, investing $10 a day in the S&P 500 index fund typically takes about 38 years to become a millionaire, assuming 10% returns, while inflation and taxes can affect the real value and net growth. Starting early and using tax-efficient accounts improve outcomes.
Personal finance plays a crucial role in retirement planning, and investing a small amount daily, such as $10, can lead to substantial wealth accumulation over time. For instance, investing $10 per day can help one become a millionaire in less than 27 years if the Vanguard Russell 1000 Growth ETF delivers its average return.
Investing in low-cost S&P 500 index funds, like Vanguard’s, is a popular strategy for retirement planning. These funds offer cost-effective choices for long-term investors, even with their relatively low returns, as starting early and using tax-efficient accounts such as IRAs or 401(k)s can significantly improve outcomes.
Warren Buffett suggests investing 90% of inherited cash in low-cost S&P 500 index funds, like Vanguard 500 Index Fund Admiral Shares (VFIAX). However, timing the market and withdrawing money along the way can hinder the growth of the investment, making it important to invest regularly and start planning early for retirement.
