The stock market is a wealth-building powerhouse, and this year has been another one for the record books.
Both the S&P 500 (^GSPC +0.21%) and the Dow Jones Industrial Average (^DJI +0.22%) reached new all-time highs earlier in August, and the tech-heavy Nasdaq Composite (^IXIC +0.16%) has surged by close to 18% from its April low.
However, volatility is a concern among many investors. Between the ongoing war in Iran, uncertainty around a potential AI bubble, and stubbornly high inflation testing the Federal Reserve, there’s no shortage of catalysts for a downturn.
Fortunately, history says that no matter what may be coming for the market, there’s a foolproof way to generate life-changing wealth. Here’s how.
Image source: Getty Images.
A long-term outlook is key to maximizing your earnings
In the short term, the stock market can be incredibly volatile. Over the past two decades alone, the U.S. has faced the dot-com bubble burst, the Great Recession, the COVID-19 crash, and the 2022 bear market.
Each of those downturns was brutal in its own way. The dot-com bubble led to one of the longest bear markets in U.S. history, for example, while the Great Recession was the most severe economic downturn post-World War II, and the COVID-19 crash was the fastest on record.
Yet despite all of this volatility, the S&P 500 has soared by 758% since January 2000. That means that if you’d invested $10,000 in an S&P 500 ETF back then and never contributed another dollar, you’d have close to $86,000 by today.
This trend has been consistent throughout history, too. Analysts at Crestmont Research studied the S&P 500’s rolling 20-year total returns since 1919, and they found that every single period has ended in positive total returns.
In other words, if you’d invested in the S&P 500 at any point over the past century and held your investment for 20 years, you’d have made money — no matter how volatile the market was in that time.
What it takes to generate $1 million in the stock market
Your exact earning potential in the stock market will depend on a variety of factors — primarily, the investments you choose. Not all stocks will thrive over the long haul, and if you’re investing in risky companies with shaky fundamentals, you could end up losing more than you gain.
Strong stocks from healthy businesses are more likely to experience long-term growth, and one simple way to invest in many of these stocks at once is through an S&P 500 ETF. This type of investment tracks the S&P 500 index, providing diversified exposure to 500 of the largest U.S. companies across all market sectors.
Historically, the S&P 500 has earned an average annual return of around 10%. While there’s no guarantee it will continue earning returns at that rate, it’s reasonable to expect somewhat similar performance going forward based on decades of data.
If you were to invest, say, $200 per month while earning a 10% average annual return, here’s approximately how those contributions could add up over time:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $137,000 |
| 25 | $236,000 |
| 30 | $395,000 |
| 35 | $650,000 |
| 40 | $1,062,000 |
Data source: Author’s calculations via investor.gov.
Again, these figures are only estimates, as nobody can predict exactly how the market will perform over time.
However, decades of history suggest that by keeping a long-term outlook and investing consistently, it’s possible to build a portfolio worth over $1 million. With larger monthly contributions or higher-earning investments, you could earn substantially more over time.
