2 index funds that could make you a stock market millionaire

The stock market is a proven path to financial independence, but new investors often have no idea where to start. There are thousands of publicly traded companies and countless variables to consider, which makes it easy to get overwhelmed. Fortunately, there are less complicated ways to make a fortune in the stock market.

Index funds attempt to track the performance of a particular market index, usually a group of stocks or bonds, and the benefits typically include instant diversification and passive management. This means that patient investors can create life-changing wealth with minimal effort.

Here are two index funds that could make you a stock market millionaire.

1. Invesco QQQ Trust

The Invesco QQQ Trust (QQQ -4.08%) tracks the performance of the Nasdaq-100, an index that includes 100 of the largest non-financial companies listed on Nasdaq. The fund includes US and international companies and is strongly oriented towards three market sectors: information technology, consumer discretionary and communications services.

Specifically, 50% of Invesco QQQ Trust is allocated to technology stocks such as Apple And Nvidia17% is allocated to discretionary consumer stocks such as Amazon And Teslaand 16% is assigned to communication titles such as Alphabet And Meta platforms. This means 83% of the fund is spread across just three of the 11 market sectors, which makes Invesco QQQ Trust riskier than a more diversified fund. That said, it also translated into staggering returns.

The Invesco QQQ Trust has produced a total return of 388% over the past decade, which equates to an annualized return of 17.1%. At that rate, $ 100 invested on a weekly basis would grow into a $ 1 million portfolio in just under 22 years. Of course, past performance is never a guarantee of future returns, but the Invesco QQQ Trust still looks like a particularly attractive option for bullish investors in the information technology sector.

As a final thought, the Invesco QQQ Trust has an expense ratio of 0.2%, which means that investors will pay $ 20 per year on a $ 10,000 portfolio. This is roughly in line with the industry average and is a bit cheaper than the fees typically charged by actively managed mutual funds.

2. Vanguard S&P 500 ETF

The Vanguard S&P 500 ETF (VOO -3.05%) tracks the performance of the S&P 500, an index that includes 500 of the largest US companies. The fund is more diversified than the Invesco QQQ Trust. It includes stocks from all 11 market sectors, although some sectors are still weighted more heavily.

The chart below shows the sector allocation of the Vanguard S&P 500 ETF.

Market sector Vanguard S&P 500 ETF allocation
Information Technology 27.9%
Health care 14.3%
At the discretion of the consumer 11.5%
financial 10.6%
Communication services 8.4%
Industrial 7.9%
Basic necessities 6.6%
Power 4.4%
Utility 3%
Real estate 2.9%
Materials 2.5%

Data source: Avant-garde.

Over the past decade, the Vanguard S&P 500 ETF has generated a total return of 243%, which equates to an annualized return of 13.1%. At that rate, $ 100 invested on a weekly basis would have grown into a $ 1 million portfolio in just over 26 years. But the compositional power of the stock market is extraordinary. Assuming the same rate of return, your portfolio would exceed $ 2 million after 32 years and reach $ 3 million after 35 years. That’s right: it would take over 26 years to make your first $ 1 million, but it would only take six years to make your second $ 1 million and three years to make your third $ 1 million.

The Vanguard S&P 500 has an expense ratio of just 0.03%, which means that investors only pay $ 3 per year on a $ 10,000 portfolio. All in all, you will be hard pressed to find better value for money.

John Mackey, CEO of Whole Foods Market, a subsidiary of Amazon, is a board member of The Motley Fool. Suzanne Frey, executive of Alphabet, is a member of the board of directors of The Motley Fool. Randi Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Trevor Jennewine has positions in Amazon, Nvidia, Tesla and Vanguard S&P 500 ETF. The Motley Fool holds positions and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Meta Platforms, Inc., Nvidia, Tesla and Vanguard S&P 500 ETFs. The Motley Fool recommends the following options: March 2023 $ 120 long calls on Apple and March 2023 $ 130 short calls on Apple. The Motley Fool has a disclosure policy.

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