How to Turn $25,000 Into $1 Million by Retirement

Accumulating wealth and growing your portfolio's value over the years isn't difficult. The biggest obstacle in investing is often the desire to try to beat the markets and score a big return in a short time period. This is why meme stocks are so popular, as the focus is often on doubling or tripling your money quickly. The strategy, however, potentially comes at a steep price, as it adds significant risk for investors.

But if you're patient and willing to invest in an exchange-traded fund (ETF), that can be a safer, more surefire way to end up with a great return. Below, I'll show you how investing $25,000 today into a low-risk ETF with minimal fees can be a path to get your portfolio to $1 million by the time you retire.

You can't go wrong investing in the S&P 500

The S&P 500 is full of the best and safest stocks you can invest in. Its composition changes over time, so you don't have to worry about picking individual stocks yourself. That's a key benefit of investing in an index that tracks the S&P 500 -- you can forget about the investment and still know that years down the road, you'll have exposure to the top stocks in the world, even if you aren't familiar with all of them.

One of the more popular ETFs is the SPDR S&P 500 ETF Trust (SPY 0.91%), which tracks the broad index. Its expense ratio is 0.09%, making it a low-cost option for investors. Fees can chip away at your returns over time, and some funds trade at significantly higher multiples than what SPY charges its investors.

How long could it take for a $25,000 investment in SPY to grow to $1 million?

There are no illusions or tricks with this strategy; it'll take a lot of time for a $25,000 investment into SPY to eventually get to $1 million. But just what kind of returns should you expect, and how quickly will your portfolio grow?

Over the past 10 years, SPY has produced returns totaling 174%. That averages out to a compound annual growth rate (CAGR) of 10.6%. When you include the dividend, however, the total return is 229% and the CAGR is higher at 12.6%.

Let's be a little conservative and assume that the total returns over the long run will average 12% per year, when including the dividend. Here's how a $25,000 investment in SPY may look, before fees, based on that assumed growth rate.

Calculations by author.

It would take approximately 33 years of continued growth, at 12% per annum, for a $25,000 investment in SPY to be worth more than $1 million. That means if you plan to retire by the age of 65, you would want to start investing by the age of 32. However, if you have fewer investing years left, you can make up for that by investing more than $25,000 or adding to your investment over time. In the above example, this merely assumes you invest a lump sum of $25,000 and leave it in the ETF. And even if the average yearly rate of return falls below 12%, your original investment will have substantially appreciated over this period.

By keeping your investment strategy simple, you can increase your odds of success

Investing in an ETF can be boring, but it's an effective way to keep your risk down while also ensuring that you're likely to generate good returns in the long run. You might be tempted to buy the latest hot tech stock today, but a lot can change in five or 10 years, let alone 20 or 30. With an ETF, you don't have to worry about tracking those changes or periodically reevaluating your investments. SPY, in particular, is a well-diversified investment which can be suitable for any type of investor.