Key Points
The Vanguard S&P 500 ETF (VOO) has averaged 12.5% annual returns since it began trading in September 2010.
The S&P 500 has consistently grown over time, regardless of rough patches.
For investors saving up for retirement, hitting the million-dollar mark is a huge financial milestone to be proud of. It takes a lot of work. Surprisingly, it doesn't actually require saving a million bucks, which would be very difficult for many investors.
Thanks to the power of compounding interest, an investor can potentially hit the million-dollar-saved mark by investing just $196 weekly in an S&P 500 (SNPINDEX: ^GSPC) exchange-traded fund (ETF) like the Vanguard S&P 500 ETF (NYSEMKT: VOO).
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Since it began trading in September 2010, the VOO ETF has averaged 12.5% annual returns (14.6% when dividends are included). That's above-average growth, so it might be better to calculate returns using the S&P 500's long-term return average of 10%. Assuming it averages a more modest 10% annually, $196 invested weekly ($10,192 annually) could easily grow to $1 million in 25 years.
That's the power of compounding interest.
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If VOO maintains its 12.5% average (which is unlikely but not impossible), an investor could hit the $1 million mark in a little under 22 years. If dividends are reinvested and the 14.6% total return is used, the $1 million mark is reached in just over 20 years.
Past results don't guarantee future performance, so you never want to assume anything when it comes to potential returns. Historically, the S&P 500 has always grown over the long term, and that's likely to continue. However, only time will tell what that growth looks like (if at all).
Either way, the most important thing you can do as an investor is to stay consistent and let time do much of the heavy lifting. There will be inevitable rough patches along the way, but VOO is made up of roughly 500 of the world's most successful and promising companies. It doesn't make it foolproof, but it does put the odds in your favor.
Stefon Walters 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.