John Smith, a financial advisor at Vanguard, says investing in a diversified mix of index funds can simplify the journey to a million-dollar retirement portfolio. Smith recommends five simple index funds to help set you on the path to a million-dollar retirement portfolio. The first fund is the Vanguard S&P 500 ETF (VOO).
This ETF tracks the performance of the S&P 500, a benchmark index that has historically averaged annual returns of about 10%. With a rock-bottom 0.03% expense ratio, you’ll get to keep most of the index’s gains. The second fund is the Vanguard Real Estate ETF (VNQ).
Real estate investment trusts (REITs) have outpaced the S&P 500 over the long run with significantly less volatility, providing both stability and growth potential. The third fund is the iShares iBoxx Investment Grade Corporate Bond ETF (LQD). This ETF invests in corporate bonds and offers a stable 4.4% yield with relatively low downside risk, making it ideal for gradually shifting toward bonds as you approach retirement.
Simple steps for million-dollar retirement
The fourth fund is the Vanguard Russell 2000 ETF (VTWO), which invests in a broad basket of small-cap stocks.
Small caps often produce similar or even better returns over the long haul, adding essential diversification. The fifth fund is the Vanguard International High Dividend Yield ETF (VYMI). This ETF focuses on high-dividend international stocks, providing stable cash flows and a 4.3% dividend yield, offering both income and global diversification.
Assuming you can achieve average annual returns of 10%, here’s a rough guide to how much you’d need to invest per month to reach a $1 million portfolio, depending on your time until retirement:
40 years: $95 per month
30 years: $266 per month
20 years: $760 per month
10 years: $2,150 per month
The key takeaway is that the earlier you start, the less you need to save each month. Starting early reduces the financial burden and increases your chances of reaching your retirement goals. A diverse portfolio of these five index funds, combined with tax-advantaged retirement accounts and regular contributions, can set you on the right path regardless of future economic conditions.
Investing in a diversified mix of index funds can simplify the journey to a million-dollar retirement portfolio.
Image Credits: Photo by Ashraf Ali on Unsplash
