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There are many ways to try and cut costs and save money. From canceling unused subscriptions to consolidating debts to spending less money on eating out, cost-cutting moves can potentially give you some room to put money aside and invest. And there's a big incentive to do so: It can help you become a millionaire.
If you can shave off $10 per day in costs, or $300 per month, and regularly invest that into a growth-focused exchange-traded fund (ETF), you can eventually have a portfolio worth more than $1 million. Here's how.
A growth-focused fund will allow you to generate the best long-run returns
You can invest in the S&P 500 to get broad and diverse exposure to the stock market. Over time, your returns will increase at the index's long-term average rate of around 10%. But if you are investing and have decades of years to go, then focusing more on growth stocks can be advantageous to you. While you take on a bit more risk by doing so, you can achieve better returns in the end. While growth stocks may experience volatility and there could be a bad year (like 2022), in the long run they are likely to rise in value and outperform broader and more diverse funds.
One fund that is particularly attractive is the Vanguard Growth Index Fund (NYSEMKT: VUG). As the name suggests, it is a growth-focused fund that targets some of the best stocks in the world. It has a minuscule expense ratio of just 0.04%, which will ensure that fees don't eat up much of your returns. And at close to 200 stocks, there's some excellent diversification there as well. Top stocks such as Microsoft, Apple, and Nvidia make up its top-three holdings and account for close to one-third of the fund.
Over the past 10 years, the Vanguard Growth Index has generated returns of 270%, outperforming the S&P 500, which is up 177% during the same time period. At 270%, the fund's compounded annual growth rate averages out to 14%.
How $300 per month can turn into to $1 million
If you invest $300 each month, that comes out to $3,600 over the course of a full year. And after 30 years of investing, that would total $108,000. But with the power of compounding, your portfolio's value could rise far higher than that.
Assuming you invested $300 every month into the Vanguard Growth Index Fund and it achieved gains of 14% per year on average, then this is how your portfolio's value could grow over the years.
| Year | Balance |
|---|---|
| 5 | $26,160.22 |
| 10 | $78,627.41 |
| 15 | $183,856.13 |
| 20 | $394,903.88 |
| 25 | $818,183.31 |
| 26 | $944,257.50 |
| 27 | $1,089,159.85 |
| 28 | $1,255,702.22 |
| 29 | $1,447,116.37 |
| 30 | $1,667,116.69 |
Calculations by author.