Can You Really Become a Millionaire With an S&P 500 ETF?

Nearly three-quarters (74%) of Americans don't believe they'll ever be wealthy, according to a 2023 report from financial services company Empower. Among survey participants, the benchmark for "wealthy" was a net worth of at least $400,000.

Building a substantial amount of wealth may seem out of reach for most people, especially as costs rise and many Americans are struggling just to get by. But investing in the stock market is one of the most effective ways to increase your net worth -- and even become a millionaire.

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Image source: Getty Images.

Investing in an S&P 500 exchange-traded fund (ETF) -- like the Vanguard S&P 500 ETF (NYSEMKT: VOO) or SPDR S&P 500 ETF Trust (NYSEMKT: SPY) -- can be a more approachable way to get involved in the stock market. This type of investment tracks the S&P 500 index (SNPINDEX: ^GSPC), with each fund containing stocks from the 500 largest companies in the U.S.

S&P 500 ETFs are relatively safe investments, as the index itself has survived many decades of recessions, crashes, and bear markets while still earning positive total returns. If you're looking to reach $1 million with this ETF, these three steps can get you there.

1. Determine your timeline

It takes decades to see significant returns in the stock market, and safer funds like S&P 500 ETFs often see lower average returns compared to higher-risk, higher-reward investments like growth ETFs. The sooner you get started, the less you'll need to invest each month to reach your goal.

Historically, the market has earned an average rate of return of around 10% per year. This means that while your annual returns will likely fluctuate significantly, they should average out to around 10% per year over decades.

If you have a goal of building a million-dollar portfolio and you're earning a 10% average annual return, here's approximately what you'd need to invest each month, depending on how many years you have to let your money grow.

Data source: Author's calculations via investor.gov.

While saving more per month can help you achieve your goal faster, it's often easier to simply let your money sit in the stock market for longer. It's never too soon (or too late) to begin investing, and getting started now will mean investing less per month.

2. Invest as consistently as possible

Although you can invest a large lump sum once or twice a year, it can often save you money to invest more regularly. This strategy is called dollar-cost averaging. It involves investing routinely throughout the year, and it can help average out stock market highs and lows.

If you only invest once a year and that happens to be when stock prices are at their highest, you could end up paying thousands of dollars more for the same investments than if you'd also invested when prices were lower.

Of course, in theory, it makes sense to only invest when the market is at its lowest. But nobody knows exactly when stocks will bottom out, and putting off investing until just the right moment means missing out on precious time to let your money grow. Investing regularly, though, can take all the guesswork out of when to buy.

3. Stay invested no matter what the market is doing

Market downturns are, unfortunately, part of life, so it's only a matter of time before we face another bear market. However, that doesn't mean you shouldn't invest anyway.

The market's short-term future can be rocky at times, but historically, there's never been a downturn from which it hasn't recovered. Also, the longer you stay invested, the less likely you are to lose money.

If you hold an S&P 500 ETF for just one year and then sell, there's a 27% chance you could see negative returns, according to research from investment firm Capital Group. Hold your investment for five years, though, and that chance drops to 12%. After 10 years, there's only a 6% chance you'll lose money.

^SPX data by YCharts.

A separate report from Crestmont Research also found that in every 20-year period in the S&P 500's history, the index has earned positive total returns. While there are no guarantees in the stock market, historically, it's extremely unlikely you'll lose money as long as you hold your S&P 500 ETF for at least 20 years -- no matter what the market is doing in that time.

It's possible to become a millionaire with an S&P 500 ETF, but you'll need the right strategy. By getting started early, investing consistently, and staying in the market for decades, you could earn more than you might think over time.

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Katie Brockman 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.