From Dishwasher to Millionaire, or Why Everyone Can Become a Millionaire (Hint: Stock Market)

Key Takeaways

• Even if you have low or moderate income, you can become a millionaire if you consistently invest in the overall U.S. stock market over several decades.

• A dishwasher who saves $100 per month and invests that in the US stock market each month over 46 years will most likely end up with over $1.5 million!

The Numbers

• Let's assume for a minute that you are a dishwasher and make $20,000 per year. Good for you if you have a great job and make much more than that. Anyway, $20,000 per year corresponds to $1,666 per month. Out of that, you can probably save $100 per month and invest it.

• If you would started at $0 and then invested $100 per month in an S&P 500 mutual fund (e.g., SWPPX) or ETF (e.g., SPY or VOO) from February 1975 to December 2020, i.e., for 46 years, you would now (as of January 2021) be sitting on $1,561,403. Yes, you read this right. That's over $1.5 million!

• Your total investment cost would have been only $55,100. That's the sum of $100 each month from February 1975 to December 2020, i.e., 551 x $100.

• The difference of $1,506,303 ($1,561,403 - $55,100 = $1,506,303) was provided by the market in form of capital appreciation and dividends! Let that sink in for a minute. You contributed only ~$55k while the market contributed ~$1.5 million over 46 years. And now you have over $1.555 million.

• All of this was made possible by an annualized return of 11.39%, including dividends.

Baby Steps

• Think about how much you can save and invest per month.

• Check out this online S&P 500 Periodic Investment Calculator to run your own scenario and figure out how long it would have taken you to become a millionaire with certain initial and recurring monthly investments.

• Or simply contact me if you want me to run a personal analysis for you.

Some Extra Details

The graph below shows the growth of the portfolio for $100 invested every month from February 1975 to December 2020. The graph was adopted from the S&P 500 Periodic Investment Calculator. The analysis assumes that all dividend payouts were reinvested. Taxes were ignored in the shown scenario. Capital gain taxes are only due when you sell an investment. If you just buy and hold an investment, which you should do for a long time, you do not owe any capital gain taxes. However, you will receive some dividend payments, which are taxable. Most dividends paid out by S&P 500 mutual funds and ETFs are qualified dividends, which are taxed at 0%, 15%, or 20%, depending on your taxable income and filing status. For example, if you are married filing taxes jointly in 2021 and have a taxable income below $80,000, you pay 0% tax on qualified dividends (see Nerdwallet) - which is good news for you. Finally, the analysis ignores portfolio management fees, which is reasonable since you should never hire a financial advisor and pay high fees to manage your portfolio (typical fees are 1% or more of all your assets under management).