Saving money and investing it in stocks has undoubtedly become more challenging due to rising costs. However, a strategic way you can boost your investment capacity is by utilizing your annual tax refund. If you can afford to put this money into quality exchange-traded funds (ETFs), it can significantly impact your portfolio's long-term growth. For instance, the average tax refund this year is around $2,850 and tends to increase over the years. By spreading this money evenly throughout the year, you could invest about $237 each month. Combining this with $100 per month from your savings efforts, you could be investing $337 monthly, setting the stage for substantial wealth creation over time.
So, how long would it take for this monthly investment to grow to $1 million? Typically, the S&P 500 has a long-term average return of approximately 9.7%. By opting for growth funds, you could potentially achieve even higher returns. Here's a projection of how your portfolio might grow if you invested $337 monthly over 25 to 30 years, depending on various annual returns. At a 10% return rate, your portfolio could reach approximately $761,784 in 30 years. Increasing the return to 12% could elevate your balance to around $1,177,803 in the same period.
With a rate as high as 13%, you might hit the $1 million mark in about 27 years. Even a small change in the percentage points can make a notable difference over time. Therefore, investing in a low-cost ETF is crucial as it minimizes costs that can eat into your returns. For long-term growth, ETFs focusing on growth sectors are ideal, despite their higher risk compared to dividend stocks.
One recommended fund is the Vanguard Growth Index Fund ETF (VUG). The ETF includes heavyweights like Apple, Microsoft, and Nvidia, which account for over 36% of its total holdings. With a 60% concentration in tech stocks and additional exposure to sectors like consumer discretionary, healthcare, and industrials, the ETF offers good diversification across 188 holdings. Moreover, it has a low expense ratio of just 0.04%, minimizing the impact on your long-term gains.
Over the last two decades, this fund has achieved total returns of 900%, averaging an annual return of 12.2%. This aligns well with the target returns necessary to amass $1 million through consistent investments. To accelerate your portfolio's growth, consider investing any unexpected windfalls such as tax refunds, inheritances, or gains from property sales. These extra contributions can significantly shorten the time needed to reach your financial goals, potentially reducing your monthly savings requirement. With a strategy in place and a reliable fund like Vanguard Growth ETF, you're well-positioned to seize opportunities and drive your way to becoming a millionaire.