If you’re hoping for a financially secure retirement, you probably want to aim for a nest of at least $1 million. A million dollar retirement account would provide an annual income of about $40,000 if you maintain a safe withdrawal rate. Ideally, this will give you a comfortable life, along with your Social Security benefits.
Investing enough to collect $1 million may seem daunting, especially if you don’t feel comfortable choosing individual stocks.
The good news is that you don’t have to be a stock selection guru to gain stock exposure. In fact, it is absolutely possible to retire a millionaire with one of the simplest investments of all: an ETF.
What are ETFs?
ETFs are exchange-traded funds. They are similar to mutual funds in some ways in that money from multiple investors is pooled together to buy many specific assets, essentially giving the individual investor a small ownership stake in each. But unlike mutual funds, ETFs trade like stocks on stock exchanges. That means you can buy and sell them whenever you want and you don’t have to make a large minimum investment, a requirement in many mutual funds.
ETFs are often, but not always, passively managed and often track financial indices. For example, you can buy an ETF that measures the performance of the S&P 500† That is an index made up of about 500 of the largest American companies.
You can also buy niche ETFs that focus on providing exposure to a more limited set of assets, such as a marijuana ETF that lets you buy into a pool of cannabis industry investments, or a cryptocurrency ETF that gives you a small ownership stake in many companies operating in the crypto market.
ETFs generally come with a low cost. And because you’re essentially buying many different assets with a single ETF purchase, they’re a fairly low-risk investment because of the instant diversification they provide.
How Can ETFs Help You Become a Retired Millionaire?
ETFs are a great choice if you’re hoping to become a retired millionaire because you can get your money’s worth in the stock market without having to understand how to invest in individual companies or research which companies are likely to see their stock value rise.
Choosing an ETF is easy. If nothing else, you can just opt for an S&P 500 ETF. That’s what Warren Buffett recommends to most investors. You can also do a little more work and buy different funds that offer exposure to a good mix of different asset types. For example, if you choose small-cap, mid-cap, and large-cap ETFs, along with an emerging market fund, a bond fund, and a real estate fund, you’ll have a very diverse portfolio invested in small, medium, and large companies, bonds, foreign companies and real estate.
Many ETFs offer relatively consistent returns. So if you put in enough money based on historical returns and your projected retirement timeline, you’re pretty much guaranteed to collect the $1 million (or more) you think you need for a secure future.
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