Want $1 Million in Retirement? 2 Simple Index Funds to Buy and Hold for Decades

Just invest in a S&P 500 index fund and do nothing.

Tony Dong, MSc, CETF®

Tony turned a series of 2017 marijuana stock losses into a freelance career advocating for ETF investing. He currently holds a Master’s in Risk Management from Columbia University and is a Certified ETF Advisor (CETF®). Tony is the founder of ETF Portfolio Blueprint (etfportfolioblueprint.com) and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE. His analysis has also been featured in publications like Kiplinger, 24/7 Wall St., U.S. News & World Report, TheStreet, and Benzinga. Tony also provides independent content and marketing consulting services to various Canadian and U.S. ETF issuers. His editorial opinions for The Motley Fool remain independent and objective.

Published November 21, 2024 9:30 am EST

You don’t need to chase the next 10-bagger stock, dive into risky options, or stake everything on cryptocurrency to aim for a million-dollar retirement fund.

In reality, those strategies are more likely to erode your wealth than build it. Instead, imagine a simpler, more dependable path to financial security: investing in an S&P 500 index fund.

Starting with just $10,000 and practicing passive investing might just be the key to reaching that seven-figure sum. This approach isn’t about getting rich quickly—it’s about building wealth steadily and surely over time.

Man data analyze — Image source: Getty Images

A historical example

Imagine this: back in 1980, you invested $10,000 in an S&P 500 index fund. Fast forward to today, and that initial investment has grown to $1,135,092.85, achieving a compound annual growth rate (CAGR) of 11.11%.

Your strategy was simple: buy once, set dividends to automatically reinvest, and then just let it sit. Why did this work? Essentially, you placed a long-term bet on the ongoing growth of 500 of the most prominent U.S. companies.

It wasn’t always smooth sailing—the average annual fluctuation was 17.95%, and in 2008, you watched nearly 55.25% of your investment evaporate during the great financial crisis.

However, by steadfastly holding on through ups and downs—literally doing nothing—you reaped substantial rewards, becoming a millionaire in perhaps the most effortless way possible.

Which funds to buy

For exposure to the S&P 500 index, you have two excellent, low-cost ETF options, both from Vanguard, a very reputable asset manager.

First, the Vanguard S&P 500 Index ETF (TSX:VFV) is denominated in Canadian dollars and carries a low expense ratio of 0.09%.

It’s an excellent choice if you’re using a commission-free platform like Wealthsimple for your Tax-Free Savings Account (TFSA).

Alternatively, if you have a Registered Retirement Savings Plan (RRSP) with Interactive Brokers, which offers low currency conversion fees, you might consider investing in Vanguard S&P 500 ETF (NYSEMKT:VOO) in U.S. dollars.

A significant advantage of using VOO within an RRSP is that it doesn’t suffer a 15% foreign withholding tax on dividends.