This 1 Simple ETF Could Turn $300 a Month Into $1 Million

Source The Motley Fool

Patient investors can reap great rewards. It's easy to get caught up in the market's gain. After all, the current bull market has created wealth for many equity investors. The S&P 500 index has returned more than 26% this year (through Nov. 14) alone.

But stocks can have volatile returns. For instance, 2022 was a challenging year that saw the market lose 18.1%. Those that sold missed out on subsequent gains.

Hence, it's important to take a long-term view. Investing over a long period smooths out short-term volatility. One way to invest and grow your money is through the Vanguard S&P 500 ETF (NYSEMKT: VOO). In fact, it can make you a millionaire if you invest $300 monthly and hold your investment for 30 years.

Of course, this requires making an assumption about returns, but the point is that you'll see how your money can grow nicely if you have a long-term approach.

Two smiling people on a swing.

Image source: Getty Images.

Low fees

The Vanguard S&P 500 ETF (NYSEMKT: VOO) charges a low annual expense fee. That's because the ETF invests passively in the S&P 500 index. It's a big advantage that allows the index to beat many actively managed funds.

It has a 0.03 expense ratio. That's lower than the average 0.77% expense ratio for similar funds.

Vanguard's S&P 500 ETF also has lower expenses than its rival SPDR S&P 500 ETF Trust (NYSEMKT: SPY), which has a 0.09% expense ratio.

Although not a great difference, it does add up over time. Why pay higher expenses for the same product? After all, lower expenses mean higher returns.

Index composition

Many news organizations talk about the S&P 500, but it's worth understanding how the index works. The S&P 500 index's holdings, and hence, the Vanguard ETF's, are weighted based on stocks' market capitalization. That is, more valuable companies have greater weight and influence on returns. While these change over time based on market performance, it's useful to know what stocks and sectors you're investing in.

The 10 largest stocks make up about 35% of the ETF as of Oct. 31. These include Apple (NASDAQ: AAPL), Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Meta Platforms (NASDAQ: META).

Information technology has the largest sector weighting, 31.7%. That's followed by financials' 13.3%, healthcare's 11.2%, consumer discretionary's 10%, and communication services' 9.1%.

The calculation

While it may prove challenging to pinpoint future returns, the past can guide you. The Vanguard S&P 500 ETF has returned 12.96% annually over the last 10 years through Oct. 31. That's nearly identical to the underlying index's 13%.

Assuming that annual rate and a $300 monthly investment, it would take about 29 years for your investment to grow to $1 million.

You can also run different return scenarios. Does 13% sound too optimistic? If the ETF returns 8% per year, it would take over 40 years to reach $1 million.

How about a 10% return annually? After 35 years, your investment would have grown to over $1 million.

You can use as many different annual returns as you feel appropriate for your estimates. For instance, you can choose bearish, bullish, and base cases.

It's instructive to model different returns to see how much your money will have grown. That will help you plan and reach your long-term financial goals.

Should you invest $1,000 in Vanguard S&P 500 ETF right now?

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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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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