Is This Simple Index Fund a Millionaire Maker? (The Answer Is Yes.)

A simple S&P 500 index fund can be all you need to build up a hefty war chest for retirement.

There are many S&P 500 index funds out there, too, such as:

• Vanguard S&P 500 ETF (NYSEMKT: VOO)
• SPDR S&P 500 ETF Trust (NYSEMKT: SPY)
• iShares Core S&P 500 ETF (NYSEMKT: IVV)

Each of these should serve you very well over the long term, in part due to their low fees. The SPDR ETF has the highest expense ratio (annual fee) -- only 0.095%, meaning you'll pay just $9.50 per $10,000 invested. The other two ETFs' expense ratios are a mere 0.03%, costing you $3 per $10,000 per year.

Image source: Getty Images.

What's the S&P 500?

The S&P 500 is an index of 500 of America's biggest companies, from Apple to Zoetis (a leading animal health company). Together, these 500 companies account for about 80% of the total value of the U.S. stock market.

Thus, if you invest in an S&P 500 index fund, you'll be invested in just about all of those same 500 companies and will effectively have invested in most of the American economy. If you're bullish on America's economic future, it makes a lot of sense to invest in it -- and to see your investment grow in value over time as the American economy grows.

Can you become a millionaire with just an S&P 500 index fund?

You certainly can! For starters, know that the S&P 500 has averaged annual returns close to 10% (ignoring inflation) over long periods. Over your particular investing period, it may average more or less, of course. So let's see how money grows at 8% annually. Check it out:

Source: Calculations by author.

See? You might become a millionaire investing only in an S&P 500 index fund in 25 years or less. It could be significantly less if you can sock away more than $15,000 annually. Remember, too, that your earliest invested dollars are your most potent ones, as they have the most time in which to grow for you.

An outstanding S&P 500 ETF

The S&P 500 index funds I listed above are all solid. Let's take a closer look at one of them, the Vanguard S&P 500 ETF. Like the others, it's an exchange-traded fund (ETF), meaning it trades like a stock.

Here's how the fund has performed in the past:

Source: Morningstar.com, as of Nov. 5, 2024.
*Since the Vanguard ETF hasn't been around for 15 years -- its inception date is Sept. 7, 2010 -- this figure is from the SPDR S&P 500 ETF.

Any S&P 500 index fund with a low expense ratio should have a similar performance record.

What's in the Vanguard S&P 500 ETF?

Below are the top 10 holdings of the Vanguard S&P 500 ETF, as of the end of September. (They will be the same for just about any other S&P 500 index fund.)

Source: Vanguard.com. As of Sept. 30, 2024.

You'll note that all of the "Magnificent Seven" -- Apple, Microsoft, Google parent Alphabet, Amazon.com, Nvidia, Facebook parent Meta Platforms, and Tesla -- are represented, with relatively large weightings, too. So investing in an S&P 500 index fund is a quick and easy way to own all seven companies.

More aggressive growers

You can definitely become a millionaire investing only in an S&P 500 index fund -- as long as you have enough time and you sock away sizable sums regularly.

If you would like to chase higher returns, though, you might consider adding some other outstanding ETFs to your portfolio. Below are a few to consider. Each has a very impressive track record, but that doesn't necessarily mean each will shine in the future. Learn more about any before investing.

• Vanguard Information Technology ETF
• Vanguard Growth ETF
• SPDR Portfolio S&P 500 Growth ETF
• VanEck Semiconductor ETF

However you go about it, be sure that you have a solid retirement plan and that you execute it well -- perhaps with the help of a simple, but powerful, S&P 500 index fund.

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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. Suzanne Frey, an executive at Alphabet, 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. Selena Maranjian has positions in Alphabet, Amazon, Apple, Berkshire Hathaway, Broadcom, Meta Platforms, Microsoft, Nvidia, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Growth ETF, Vanguard S&P 500 ETF, and Zoetis. The Motley Fool recommends Broadcom and 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.