Historically, investing in the S&P 500 has proven to be an effective method for building wealth. This index serves as a standard for the overall market by tracking 500 of the largest and most successful companies in the U.S.

While direct investments in the S&P 500 aren’t possible, you can find various low-cost exchange-traded funds (ETFs) that track the index. Since these ETFs spread your investment across many stocks, they provide a lower-risk approach compared to selecting individual stocks.

It may not always be feasible to invest a large sum into the stock market at once. However, if you receive an inheritance or make a profit from selling a property, you might be able to make a significant investment, even without having built a large savings account.

In this article, I will explore the potential of investing $50,000 in an S&P 500 index fund and whether it can lead to achieving $1 million by retirement, which is a goal for many aiming to live comfortably in their later years.

The S&P 500 has shown remarkable returns over the last 10 years

Looking back nearly a century, the compounded annual return for the S&P 500, including dividends, sits at 10.1%. However, in the past decade, this return has surged to an impressive 13.7%. While that spells good news for investors who have been in the market during that period, the projection for the next ten years is less encouraging.

For instance, analysts at Goldman Sachs suggest that the S&P 500 might only yield an average annual return of 3% over the next 10 years due to elevated valuations, which could skew returns toward its largest companies. Similarly, JPMorgan analysts predict a modest annual return of 6% for the index in the coming decade.

In simpler terms, investing in the index today could result in significantly lower returns than what investors have become accustomed to in recent years.

Data from YCharts.

However, for those just starting or well into their careers, focusing investment strategies on the long term is crucial. Even if the S&P 500 has lackluster returns in the first five or ten years, it could still recover and provide better returns later on. The unpredictability of the markets makes forecasting returns over such an extended period virtually impossible.

Potential outcomes of a $50,000 investment

Rather than attempting to predict the S&P 500’s annual returns over the next decade, the following table provides insights into what a $50,000 investment could amount to under various circumstances.

Calculations and table prepared by the author. Figures rounded to the nearest hundred.

It’s essential to recognize that although a $50,000 initial investment is considerable, it will require many years and a strong rate of return to reach $1 million.

One potential strategy for increasing these amounts is making additional contributions to your investment over time. Even if you start with a significant sum, regularly adding to your portfolio can help enhance your returns.

Consistency leads to success

After reviewing the table, you may think it’s not worth investing in the S&P 500 if expected returns seem to be waning in the future. You might even consider focusing on growth stocks instead. However, higher potential returns typically come with greater risk, and not everyone is comfortable with that added volatility.

Investing in the S&P 500, however, offers immediate diversification, with an emphasis on large, quality companies making it among the most dependable means to engage in the stock market. Yet even with a $50,000 starting point, you must exercise patience to allow your investment the necessary time to flourish and grow into a substantial nest egg.

JPMorgan Chase is a partner of Motley Fool Money. David Jagielski holds no positions in any mentioned stocks. The Motley Fool owns and recommends shares in Goldman Sachs Group and JPMorgan Chase. For further details, refer to their disclosure policy.

The Motley Fool is a content partner of YSL News, providing financial news, analysis, and insights designed to empower individuals in managing their financial well-being. Its content is created independently from YSL News.

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