How Quickly Can You Make $1,000,000 by Investing?
By: Carter Kilmann
Tags: Personal Finance, Investing, Stock Market, Money, Saving

Can you invest your way to millionaire status?

Yes, if you’re patient.

Sure, in theory, you could drop $100,000 on some $2 stock and pray that it jumps to $20 — but that’s unrealistic, risky, and impractical. Plus, you’d need $100,000.

If you’re impatient and expect to see immediate, gargantuan returns, you’re going to burn through your money. Investing in the stock market isn’t a get-rich-quick scheme. Don’t dump your hard-earned savings into an “up-and-coming” stock and cross your fingers that it takes off.

If that’s your mindset, you might as well play roulette at the closest casino and put it all on red. Because speculative investing is pretty much gambling.

At least with roulette, you’ll immediately know if you’re a winner or loser.

Let’s say you had the foresight and fortitude to invest $1,005 in Netflix back in 2002 when its IPO share price was only $15. Keep in mind, Netflix didn’t look like it does today — their original business model was based on DVD rentals, a market that Blockbuster (R.I.P.) dominated at the time. To give you an idea of the contrast, in 2002, they had 600,000 subscribers. As of September, they boast more than 195 million global subscribers.

Eighteen years and two stock splits later, your investment still wouldn’t be worth millions.

Even if you sold your investment on July 13 at Netflix’s peak price of $575.37, which would equate to a 53,601% return, your shares would only be worth $539,697. Obviously, that dollar amount probably doesn’t warrant me saying “only” but, for the purposes of our example, it doesn’t make you a millionaire.

If you want to pragmatically invest your way to seven-figure wealth, you need to adopt a long-term investment strategy. The good news is you don’t need an extensive financial background or a ridiculous amount of money to start your wealth journey.

A little education and modest savings can go a long way.

Lesson #1: Investing doesn’t start with opening a brokerage account or researching stocks or developing an investment strategy. It starts with saving.

Save more than you spend

You can’t invest what you don’t have.

First of all, you shouldn’t be investing until you’ve established your financial foundation — such as a life fund and an emergency fund. Otherwise, you risk jeopardizing your stability and sanity.

The most straightforward way to achieving wealth is by living within your means. That’s how school teachers can outpace doctors and lawyers in terms of wealth generation and financial stability.

If Doctor Dan earns $500,000 a year but suffers from lifestyle creep — buying an expensive house, driving luxurious cars, and living an extravagant day-to-day life — he’s far from financial stability. Why? Because his income is tied up by car payments, mortgage payments, expensive trips, and whatever else he throws his money at.

On the other side, Teacher Tom is thrifty and knows how to live a modest lifestyle. He saves more than he spends, which helps him build wealth at the exact same rate as Doctor Dan.

It’s a hypothetical situation, but it illustrates the power of saving. Now, what to do with those savings?

Lesson #2: Use your savings to grow wealth with compound interest.

Maximize compound interest

Compound interest is the idea of earning interest on interest. When applied to the stock market, it’s the ongoing reinvestment of your capital gains, which creates a compounding effect — so your gains produce even more gains.

In simpler terms, it’s a proven way to generate and exponentially increase wealth. And, again, you don’t need millions of dollars or a fancy degree to take advantage of compound interest. Even a simple, recurring investment in the general stock market can be lucrative down the road.

Historically, the average annual return of the S&P 500 is roughly 10%. Using the Rule of 72, that means an investment in an S&P 500 index fund should double in value every 7.2 years. Obviously, that return and growth can’t be precisely predicted or guaranteed, but it’s a reasonable assumption.

With this in mind, let’s answer our initial question.

How quickly can I earn $1,000,000?

It depends on how much you’re willing and able to save. Because the more you save, the more you can invest.

Everyone’s financial situation is unique, but we can project a few different scenarios based on the average income.

In 2019, the average household income — which considers families and single individuals — was $68,703. That doesn’t account for taxes, but we’ll conservatively assume you’re left with $50,000 after paying Uncle Sam. So, on a monthly basis, the typical person makes around $4,167.

Now we can outline a few different scenarios.

1% savings rate ($50 per month)

Let’s start by assuming you have $1,000 to invest in an S&P 500 index fund right now. Let’s also assume you regularly save and invest $50 a month in the same fund, which is a savings rate of roughly 1%. In this scenario, it would take about 53 years to eclipse $1,000,000.

10% savings rate ($417 per month)

Half a century is a long time to patiently wait for your investments to grow. So, let’s ramp up your savings. What if you cut back a bit on your lifestyle expenses and save 10% of the average monthly income ($417)? That timeline shrinks to 32 years.

20% savings rate ($833 per month)

Saving a fifth of your income is far from unreasonable. In fact, a 20% savings rate is typically the minimum saving recommendation. Setting aside and investing $833 per month, you’ll eclipse seven figures in 26 years.

50% savings rate ($2,083 per month)

There’s a pretty obvious pattern here: higher monthly contributions lead to higher exponential growth. So, what if you really lived within your means? What if you saved 50% of your monthly income?

You’d cross $1,000,000 after only 17 years.

And that’s based on the median household income. If you earn more or have a dual-income household, your earning potential is much higher — and your path to $1,000,000 can be much shorter.

Keep in mind that these numbers do not adjust for inflation, which is usually 2–3% each year. In other words, $1,000,000 fifty years from now won’t go as far as $1,000,000 today. That said, these numbers also don’t account for salary bumps, promotions, or secondary sources of income.

Lastly, the usual disclaimer, past performance isn’t an indicator of future success. The market has averaged 10% annual growth, but that doesn’t mean it moves at a predictable, positive pace — or that future gains are guaranteed. It’s just a reasonable assumption.