These 2 simple index funds could turn $100 a month into $1 million

Investing is a fascinating world with layers of knowledge and understanding that can sometimes be intimidating. But successful investing doesn’t have to be complex; it may be simple, perhaps even mindless. I say this because it is very possible to amass a million dollar fortune even if you start with nothing.

That doesn’t mean finding the next one Amazon or Nvidia in her early years. Instead, you need:

1. Time
2. Consistency
3. Patience

Apply these three ingredients to these two simple index funds, and you’re almost certain to build substantial wealth over a lifetime.

Here’s what you need to know.

How $100 a month becomes $1 million

You may have already guessed, but $100 doesn’t grow to $1 million overnight, even if you put that much away month after month. Like good barbecue, the best things take time, and you’ll take advantage of the mix to grow your fortune.

The math is simple. If you save $100 monthly for 45 years and generate a 10% annual return on your money, you’ll end up with about $1,057,000. Why $100? Because it should be an achievable monthly savings goal for most people.

You can save more to speed things up, of course, so don’t panic if you’re older or feel like you’ve fallen behind. It’s never too late to tackle your wealth building goals. The idea is that letting the combine do most of the heavy lifting with your money helps keep the amount needed manageable for most people.

Get on board the S&P 500

The hard part is accumulating your money at 10% annually for decades. However, there is a tried and true mechanism for doing this: S&P 500.

It’s a stock index that includes 500 of the largest US stocks, handpicked by a committee that uses a set of rules to ensure that only quality companies make the cut. The index is weighted by market capitalization, so the larger a company is, the more it contributes to the index. Companies have moved in and out of the S&P 500 over time, but the index itself has proven to be a remarkably powerful wealth-building machine:

Data by YCharts.

The trick with the S&P 500 is that it’s not always a smooth ride. You can see above that the index has trended upward over time, but there have been major ups and downs. However, the annual return of the index is around 10% over the long term. There’s no guarantee the S&P 500 will continue this way, but its performance through history’s recessions, wars and even a global pandemic is reassuring, to say the least.

Consider these two fantastic index funds

The problem is that you can’t invest directly in the S&P 500. However, many index funds allow you to achieve the same goal. Investors have many options, but two stand out: the Vanguard S&P 500 ETF (VOO -0.24%) and the SPDR S&P 500 ETF Trust (SPY -0.25%).

World-class investor Warren Buffett built his legendary reputation on Wall Street by picking winning stocks for his company, Berkshire Hathaway. Of the dozens of stocks that Berkshire Hathaway owns today, only two are index funds — the two discussed here. There is no clear choice between them; both are popular and have almost identical historical performance.

Their low expense ratios (commissions paid to the fund management company) also make them attractive. The Vanguard S&P 500 ETF charges just 0.03% of your holdings annually, while the SPDR S&P 500 ETF Trust collects 0.0945%. It’s just pennies from the $100 you invest every month. High fees will cut into your profits in the long run, so it’s always something to watch out for.

Done, done, go

If you haven’t already started, your priority should be to do so as soon as possible. Determine whether you will save your money in a brokerage or retirement account. Then, invest that $100 (or more) monthly, whether the S&P 500 goes up or down. In the end, it won’t matter as much as you think. Focus on reaching or exceeding your $100 monthly goal and consider automating contributions so they’re out of sight and out of mind, effectively putting your savings strategy on autopilot.