How to Turn $10,000 Into $545,507

Holding an S&P 500 index fund over many decades could be a great hands-off growth investing strategy.

| More on:
A person looks at data on a screen

Image source: Getty Images

Albert Einstein once called compound interest “the eighth wonder of the world”. Young investors who reinvest dividends and stay the course can get rich slowly as their portfolio gradually snowballs.

At the Fool, we endorse a similar investing philosophy. Simply put, the Fool method involves picking high-quality stocks and maintaining a long-term perspective. With this approach, anybody can win in the stock market.

Today, I’ll show you how this approach would have worked out historically. I’ll be using the S&P 500 Index as an example, and then providing some examples of exchange-traded funds, or ETFs that track it.

Why invest in an index fund?

Stock picking can be hard. While it can be a fun hobby and lead to beating the market, it can also be time-consuming and result in underperforming the market.

Investing in an index fund offers a painless alternative that requires less research and knowledge. With this approach, you’re seeking to match the average return of a well-known market index.

A popular option here is the S&P 500 Index, which tracks 500 large-cap U.S. stocks. It’s seen as a barometer for U.S. market performance and benchmark for investors to beat.

Over long periods of time, very few investors – professional or retail – manage to consistently beat the S&P 500. By investing in S&P 500 index funds, you get a great portfolio of stocks at a low cost.

An historical example

Imagine you started investing back in 1985 as a 22-year-old with just $10,000. You put it all in an S&P 500 index fund and vowed to hold no matter what happened in the markets, and reinvest any dividends promptly regardless of the current price.

Fast forward 37 years later, your humble $10,000 investment would have grown to $545,507 at an 11.1% annualized rate of return without any additional contributions.

All you did was hold and reinvest dividends. You didn’t panic sell or try to time the market when Black Monday hit in September 1987, the Dot-Com Crash happened in March 2000, the Great Financial Crisis started in November 2007, or COVID-19 crashed the market in January 2020.

Of course, this assumes perfect investment behaviour. The S&P 500 is a fantastic vehicle to grow wealth, but you must remain disciplined and maintain a long-term perspective. Its high rate of growth is of no use if you panic-sell at the first sign of volatility or during a bad crash.

Interested in investing in the S&P 500? The following Canadian-listed ETFs provide exposure to the index at very low management expense ratios:

  • Vanguard S&P 500 Index ETF (TSX:VFV)
  • iShares Core S&P 500 Index ETF (TSX:XUS)

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

An airplace on a runway
Stocks for Beginners

Is Bombardier Stock Still a Buy After Surging 46% in May?

Here are some key fundamental factors that could help Bombardier stock continue soaring in the years to come.

Read more »

gold stocks gold mining
Stocks for Beginners

1 Gold Stock to Buy for More Growth, Less Risk

This gold stock has seen shares rise 15% in the last year. But it's more than just the price of…

Read more »

Gas pipelines
Stocks for Beginners

3 Reasons to Buy Enbridge Stock Like There’s No Tomorrow

Enbridge (TSX:ENB) is a superb long-term option. Here's why you should buy Enbridge stock right now and hold it for…

Read more »

growing plant shoots on stacked coins
Stocks for Beginners

1 Copper Stock to Buy as Copper Prices Shine

The price of copper continues to climb, and more copper production is on the way for this top stock up…

Read more »

Business success with growing, rising charts and businessman in background
Stocks for Beginners

2 Top TSX Growth Stocks to Buy Today and Hold for 10 Years

Are you looking for top-performing TSX stocks to hold for a decade? Topicus.com and goeasy could really pay off for…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

This Dividend Stock Just Jumped 10%! Time to Buy?

This dividend stock is way up after being included in a major index, making it a prime time to pick…

Read more »

Pile of Canadian dollar bills in various denominations
Stocks for Beginners

Up 94% in 2024! 3 Reasons Celestica Stock Is (Still) a Screaming Buy Today

Here are the top three reasons that could help Celestica stock continue soaring in the long run.

Read more »

sale discount best price
Stocks for Beginners

Time to Pounce: 1 Phenomenal TSX Stock That Hasn’t Been This Cheap in a While 

Buying the dip of a phenomenal cyclical stock could generate fantastic returns. Here is a cheap TSX stock in its…

Read more »