Saving little by little can result in monstrous future profits thanks to compounding.
| The motley fool
You may think that growing your portfolio to $1 million or more is unfeasible. But if you aim for small profits and savings, it becomes a much more plausible scenario to imagine. Eating out less, switching utility or cell phone providers, or buying store-brand products instead of the big brands are some ways you can make additional savings on a regular basis.
Just saving and investing €10 a day can be enough to eventually lead to a portfolio that grows to at least €1 million. Here’s how that can work.
Saving €10 per day is the same as putting aside €3,650 per year
When you think about having to save and invest $3,650 a year, that amount can seem difficult, especially considering inflation. But if you break it down into smaller chunks and aim to save $300 per month or $10 per day, it can be much more achievable.
IIt also puts into perspective how expensive these seemingly innocent and modest everyday expenses can be. Depending on how much you spend on coffee or eating out each day, avoiding some of these costs or trading up for cheaper options could be enough to help you realize that much savings.
And if you can save $3,650 a year and do so over the long term, then you’re well on your way to building a strong retirement fund. After saving so much for twenty years, you have set aside €73,000. And after 30 years the total would be almost $110,000.
That’s far from $1 million, but here’s why investing those savings can make a huge difference.
With a top fund from Vanguard you can achieve market-based returns
If you can save $10 a day or about $300 a month, you’re better off putting that money to work right away. That means putting it into an exchange-traded fund (ETF) that can help you grow your savings without much risk. ETFs provide good diversification and can allow you to earn great long-term returns.
Over the past twenty years, the fund has generated a total return (including dividend payments) of over 900% and has easily outperformed the S&P500.
VUG Total return level data Ygraphs
Investing in the Vanguard fund for 30 years could result in a portfolio worth more than $1 million
The Vanguard ETF’s approximately 920% return over the past twenty years equates to a compound annual growth rate (CAGR) of approximately 12.3%. By comparison, the S&P 500 averages a CAGR of about 10.7%.
Assuming these interest rates hold up over the long term, here’s how a $10/day or $300/month investment in the Vanguard fund would grow over the years, and how that would compare to just a reflection of the S&P 500.
Calculations by author.
While it may seem like a modest difference in growth rates, the difference in balances over a very long period of time can prove to be significant. This is why investing in the growth-oriented Vanguard fund can be particularly powerful. Its potential to outperform the S&P 500 can make it an ideal place to allocate your savings on a regular basis.
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However, it is important to remember that future returns are never a guarantee and that they are likely to be different from the above estimates. But by investing in growth stocks, you can give yourself a great chance of success at outperforming the market in the long term.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Nvidia, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has one disclosure policy.
The Motley Fool is a content partner of USA TODAY offering financial news, analysis and commentary designed to help people take back control of their financial lives. Content is produced independently of USA TODAY.
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