How Young Workers Can Grow Wealth: A 30-Year Investment Plan
The Bureau of Labor Statistics reports that the median annual income for full-time workers aged 25 to 34 was $59,000 in the fourth quarter. After taxes, earnings would be approximately $45,000 in the worst-case scenario. Financial advisors typically suggest saving 20% of after-tax income for retirement. Therefore, the median worker in this age group should aim to save around $9,000 annually, translating to about $750 per month.
Investing even half of that saving wisely could lead to a substantial portfolio over time. For example, investing $375 monthly in the Vanguard S&P 500 ETF (NYSEMKT: VOO) could potentially grow to at least $592,100 over 30 years, factoring in taxes and fees. This amount could then be reinvested in the Vanguard High Dividend Yield ETF (NYSEMKT: VYM), yielding about $17,900 annually in dividend income.
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Here’s what investors should know.
Image source: Getty Images.
Step 1: Invest $375 Monthly in Vanguard S&P 500 ETF
The S&P 500 (SNPINDEX: ^GSPC) tracks the performance of 500 large U.S. companies, representing approximately 80% of domestic market capitalization. Given its breadth, it serves as an excellent indicator of the overall U.S. stock market. The Vanguard S&P 500 ETF reflects this index. The five largest holdings are as follows:
- Apple: 7.2%
- Nvidia: 6.1%
- Microsoft: 5.9%
- Amazon: 3.9%
- Alphabet: 3.6%
The S&P 500 has yielded a total return of 1,750% over the past 30 years, compounding at 10.2% annually, despite facing four bear markets and three economic recessions. Given this broad economic range, investors might reasonably anticipate similar returns in the next three decades.
To be conservative, it is prudent to assume a slightly lower annual upside of 10%. If $375 is invested monthly in the Vanguard S&P 500 ETF with all dividends reinvested, that investment could grow to $740,200 after three decades.
When considering the math, it is important to note that selling the Vanguard S&P 500 ETF might trigger a taxable event, depending on the account type and individual tax situation. In a worst-case scenario, fees and capital gains tax could reduce the $740,200 by about 20%, resulting in approximately $592,100 available for further investment.
Step 2: Reinvest in Vanguard High Dividend Yield ETF
The Vanguard High Dividend Yield ETF focuses on around 520 companies anticipated to offer above-average dividends. These companies typically fall into the value stock category, with a current dividend yield of 3.05%. The five largest holdings in this fund are:
- Broadcom: 4.9%
- JPMorgan Chase: 4%
- ExxonMobil: 2.7%
- Walmart: 2.3%
- Procter & Gamble: 2.2%
Over the past decade, the Vanguard High Dividend Yield ETF has delivered an average yield of 3.03%. Therefore, reinvesting the $592,100 into this ETF could generate over $17,900 in annual dividends.
It’s important to note that this investment strategy extends over a 30-year horizon. It is conceivable that the Vanguard High Dividend Yield ETF may not be the optimal choice or could be unavailable in three decades. In that event, investors should seek alternative products that provide substantial passive income.
One key consideration is to select investment options that combine high dividend yields with the stability associated with quality value stocks. This involves not merely opting for the fund with the highest yield but ensuring it includes strong, reliable stocks.
Should You Consider Investing $1,000 in Vanguard S&P 500 ETF Now?
Before purchasing shares in the Vanguard S&P 500 ETF, be aware of this:
The Motley Fool Stock Advisor team has identified ten stocks they believe are worth investing in now. Interestingly, the Vanguard S&P 500 ETF is not included in this list. The ten selected stocks could yield significant returns in the coming years.
For example, Netflix was included in this list on December 17, 2004. A $1,000 investment at that time would now be worth approximately $495,226! Similarly, Nvidia was added to the list on April 15, 2005, and a $1,000 investment would now be valued at around $679,900!
It’s also important to note that the Stock Advisor has achieved a total average return of 796%, significantly outperforming the S&P 500, which stands at a 155% return. Don’t miss your chance to see the latest top 10 list available by joining Stock Advisor.
*Returns are as of April 10, 2025 for the Stock Advisor
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is also on the board. JPMorgan Chase is an advertising partner of Motley Fool Money. Trevor Jennewine holds positions in Amazon, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends positions in and advises on Alphabet, Amazon, Apple, JPMorgan Chase, Microsoft, Nvidia, Vanguard S&P 500 ETF, Vanguard High Dividend Yield ETF, and Walmart, as well as recommends Broadcom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
