Can you retire a millionaire with ETFs alone? | personal finance

(Katharina Brock)

Can you retire a millionaire with ETFs alone? The simple answer is yes, you can. Here’s how.

You don’t have to beat the market

It’s a common belief that investors get rich by picking individual stocks and beating the market. While that may be true, stock picking isn’t the only way for investors to build wealth. Funds — especially ETFs — can also make you a millionaire, even though many of them never outperform the market.

In fact, the broader market offers enough growth potential to build a seven-figure bond fund. To use this market power and achieve your wealth goals without having to pick a single stock, follow the four rules below.

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1. Choose efficiency

Funds have administrative costs that they pass on to unitholders. These costs dilute the returns of the underlying stock portfolio. When you choose cost-effective funds, a larger portion of the ETF’s returns flow into your bottom line.

The expense ratio is the metric you use to compare funds for cost effectiveness. You’ll see this number represented as a percentage, which is a fraction of 1%, say 0.10%. An expense ratio of 0.10% equates to spending $10 for every $10,000 invested.

Some index ETFs have expense ratios that are close to zero. iShares Core S&P 500 ETF and Vanguard S&P 500 ETFFor example, both have an expense ratio of 0.03%.

If your 401(k) doesn’t offer low-cost ETFs, ask your administrator if your account has a broker window. Or invest in these funds in an IRA or taxable brokerage account instead.

2. Plan your asset allocation

Asset allocation is the composition of your portfolio across different asset classes such as stocks and bonds. Stocks provide growth, with some risk, while bonds provide stability. You can mix and match the two to customize the risk and reward characteristics of your portfolio.

Since you’re aiming for millionaire status by retirement, you’ll want a higher percentage of stock ETFs versus bond ETFs. If retirement is decades away and you can handle some volatility, you could own up to 90% equity mutual funds. Start with a lower percentage if retirement is within 15 years or if stock market volatility makes you nervous.

3. Invest generously and consistently

In order to get seven figures with ETFs, you have to invest generously and consistently – over decades. The numbers in the table show the monthly contributions required to reach $1 million in different time periods. Note that the monthly contributions may include your employer match.

Monthly contribution


final balance



1 million dollars



1 million dollars



1 million dollars



1 million dollars



1 million dollars

Data source: Author’s calculations via

All scenarios assume compound annual growth of 6%, which is slightly below the stock market’s long-term post-inflation average. That rate of growth should be achievable over 20+ years in a retirement portfolio that relies heavily on stock ETFs.

You can see that the monthly contribution becomes unmanageable if you wait too long to start investing. That’s your cue to start this plan today. Even if you’re 30 years from retirement and can’t afford to contribute $1,000 a month, invest whatever you can today. You can increase your contribution later as your income increases.

4. Don’t time the market

Whatever happens to the stock market, make a commitment to stay invested and keep making contributions. If you start withdrawing or selling contributions to avoid losses, you may never reach that million-dollar goal.

It may sound counter-intuitive, but normally you sell to avoid losses lowers your return. For example, the market is falling, so sell at a lower stock price to stop the bleeding. They then wait for the market to stabilize to reinvest. At this point, you buy back your shares at a higher price than you sold them. Selling low and buying high creates a loss that eats into your long-term returns.

If you stay invested when the market is going sideways, you don’t have to worry about when to reinvest. They also remain well positioned to benefit from a market rally.

Seven digits about ETFs

ETFs can help you retire a millionaire. The strategy is to take advantage of the long-term growth trend of the market. For this to work, you need to select low-cost funds, be strategic in your asset allocation, and invest consistently over time – without being spooked by market fluctuations.

ETF investing isn’t the hottest way to get rich, but who cares? Retiring a millionaire is sexy in itself, no matter how you get there.

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Catherine Brock owns the Vanguard S&P 500 ETF. The Motley Fool owns shares of and recommends the Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

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