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Can You Retire a Millionaire With ETFs Alone? | Smart Change: Personal Finance

If you want to retire as a millionaire, you’d better get started on your journey soon. At a savings rate ordinary people might be able to afford, it’s a process that’s achievable, but it can take decades. Fortunately, ETFs serve as a superb investing tool that can make it easier for you to reach that target.

Indeed, you can retire a millionaire with ETFs alone, as long as you manage your end to end financial plan appropriately. You’ll need to start early enough, invest enough money in an aggressive enough strategy, and convert some money to higher certainty choices as your retirement approaches. In many ways, in fact, ETFs can make your investing job easier as you strive to become a millionaire by retirement.

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Why ETFs can help you out

Ultimately, an ETF is just a pre-designed collection of investments. The key advantage of any given ETF is that it offers a one-stop-shop to buy multiple investments within the framework of its underlying strategy, often with low overhead costs. That lets you as an investor focus on the overall strategy or strategies that you’re interested in following, and then let the ETFs handle the work of picking the specific investments within that strategy.

Do you want to invest in the S&P 500? There are several ETFs that will let you track that index. Do you want international exposure without having to become an expert in other countries’ accounting rules? There are ETFs that will help there, too. Are you ready to start converting some of your assets to bonds to give you higher-certainty cash flows for your retirement? There are even ETFs that can help out on that front.

If you want to get the long-term benefits of investing without the hassle or effort of scouring financial statements to try to separate winners from losers, ETFs can be a very powerful tool in your arsenal.

Are there any trade-offs?

All that said, there is still no such thing as a free lunch in investing, and ETFs are no exception to that rule. ETFs generally come with ongoing management fees that you’ll pay every year for owning them. Still, those fees could be a bargain compared to the hassle of managing a diversified portfolio.

In addition to the fees, since ETFs are frequently passively managed to match a strategy, chances are you’ll perform somewhere in line with the average of following that strategy. You’ll be less likely to wildly outperform, but at the same time, you’ll be less likely to wildly trail it, too.

On top of that, since ETFs are simply collections of other assets, you’ll need to dig into their holdings to have a clear understanding of what you own. If you want to pay attention to valuation or diversification, you’ll need to investigate each of your ETFs to make sure you didn’t wind up inadvertently over-invested in an asset you’re not really comfortable holding.

How long will it take to get there?

The following table shows how many years it will take to get to millionaire status starting from $0, depending on how much you can sock away each month and what rate of return you earn. As should be obvious from that table, the more you can sock away and the higher the rate of return you earn, the less time it will take for you to become a millionaire.

Monthly Investment

10% Annual Returns

8% Annual Returns

6% Annual Returns

4% Annual Returns

$2,833.33

13.8

15.2

17.0

19.5

$2,250.00

15.6

17.3

19.6

22.8

$2,208.33

15.7

17.5

19.8

23.1

$1,708.33

17.8

20.0

22.9

27.2

$1,500.00

18.9

21.3

24.5

29.4

$1,000.00

22.5

25.6

30.0

36.8

$500.00

28.9

33.4

40.1

51.1

Over long periods, the stock market has delivered annualized returns somewhere between the 8% and 10% levels, though those returns are neither guaranteed nor are they smooth. That makes market tracking ETFs a wonderful tool to use over the long run to attempt to reach millionaire status.

As for the monthly investment amounts in that table, those top amounts were not pulled out of thin air. They are based on maxing out 401(k) and IRA contributions for the year. In particular:

  • $2,833.33 would max out both a 401(k) and an IRA for an investor age 50 or up. The annual limits in that age bracket are $27,000 for 401(k) contributions and $7,000 for IRA contributions.
  • $2,250.00 would max out a 401(k) for an investor age 50 or up.
  • $2,208.33 would max out both a 401(k) and an IRA for an investor under age 50. The annual limits in that age bracket are $20,500 for 401(k) contributions and $6,000 for IRA contributions.
  • $1,708.33 would max out a 401(k) for an investor under age 50.

Get started now

Of course, it is possible to reach millionaire status saving less than those amounts, but it will take longer to reach that target. Don’t despair if you can’t start from scratch and reach your savings goal right away. If you start with what you can and add to your investment amounts when you’re able, it beats putting off investing until later. After all, the less time you have until you retire, the more you’ll have to sock away each month to reach the same end state.

So get started now, and give your ETFs the best chance they can of helping you reach retirement as a millionaire.

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