Investing $500 per Month in This Dividend ETF Could Set You Up for Life, According to History
Key Points
$500 a month may not seem like much, but it's more than enough to help you achieve long-term wealth and financial security.
The key is to keep investing regardless of what the market is doing and resist the temptation to time the market.
The Vanguard Dividend Appreciation ETF (VIG) targets companies with 10-plus-year track records of annual dividend growth.
If you have the goal of saving $1 million or more for retirement, $500 a month may not sound like it'll do much. On its own, that's 2,000 of those monthly payments, which translates to more than 166 years in order to hit the million-dollar mark.
But that's why long-term compounding growth is so important. If you invest that $500 monthly into an investment earning a long-term market rate of return and continue doing that for years, if not decades, you'll quickly find that the $1 million goal is actually well within your reach!
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In my opinion, the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) could be the fund to help you accomplish that.
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VIG has delivered solid results for years
The Vanguard Dividend Appreciation ETF targets large-cap companies with at least 10 consecutive years of increased annual dividends while eliminating the highest-yielding names from consideration. That limits its income potential -- only a 1.4% dividend yield currently, but it doesn't sacrifice capital growth potential.
Since its 2006 inception, the fund has returned an average of 10.2% annually, which is right in line with the long-term 10% average annual return of the S&P 500 (SNPINDEX: ^GSPC).
This fund has a bit more of a growth profile than the typical dividend ETF, which can actually work well for long-term holding periods. Technology currently accounts for around 26% of the overall portfolio, and the top three holdings are Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL), and Broadcom (NASDAQ: AVGO).
Those companies are going to spin off minimal dividends, but they're also the kinds of companies that can grow at a rate faster than the broader S&P 500. That could be just the kind of growth-and-income profile that can set people up for life if held long enough.
The math that turns $500 a month into $1 million
Let's take a look at exactly how much that $500 a month investment into the Vanguard Dividend Appreciation ETF could grow into over time.
At a hypothetical 10% annual return, which is consistent with what this fund and the broader market have done over the long-term, that $500 monthly investment grows to:
- $102,000 after 10 years.
- $380,000 after 20 years.
- $1,130,000 after 30 years.
- $3,161,000 after 40 years.
The big takeaway, of course, is that time is your biggest ally. The earlier you start investing, the more time you have to let your investment grow. And as you can see, even a modest $500 monthly can turn into millions of dollars over a period of decades.
The key is to invest consistently, even when the market is down, and resist the temptation to time the market and sell when things aren't looking good. If you're able to do that, the long-term power of compounding can do most of the work for you!
David Dierking has positions in Apple and Vanguard Dividend Appreciation ETF. The Motley Fool has positions in and recommends Apple, Broadcom, Microsoft, and Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.