How to retire a millionaire with Vanguard
A step-by-step guide to investing with Vanguard
This article will give you a step-by-step guide to becoming a millionaire by investing with Vanguard. I will detail the steps to opening an account, choosing your investments, and setting up automatic contributions.
Keep in mind that similar brokerage firms will offer a very similar value proposition. I personally use Vanguard because I am a fan of their investment options, but Fidelity and Charles Schwab (to name a few) offer very similar options that will achieve an effectively identical result.
Part 1: Opening an account with Vanguard
Step 1: Open an account with Vanguard
Go to https://investor.vanguard.com/home and in the top right corner, select “open an account.”
Step 2: Select the funding option that best fits you
Assuming that you are starting from scratch, you will want to select “open a new account with money from my bank.”
Step 3: Select “on my own”
I would highly suggest managing your own investments, but if you truly believe you will not be able to resist moving around your investment allocation, Vanguard services are reasonably priced.
Step 4: Select “I’m new to Vanguard”
Step 5: Select account type
For the purposes of this article, we will focus on retirement investing through an Individual Retirement Account (IRA).
Step 6: Select IRA
The focus of this article will not be the difference between retirement account types. Traditional is typically for higher income earners (relative to your planned retirement income) and Roth is for lower income earners in general. I would suggest pausing at this step to understand the difference if you are not sure!
Both accounts will offer tax advantages for the funds invested in them, but will also have restrictions on the ability to access those funds, so make sure you know why your choosing the account you’re choosing and what your plan is.
Step 7: Populate your personal information
As a last step to creating your account, populate your personal information and link your bank account to deposit the desired funds to invest.
Part 2: Investing in your Vanguard account
When it comes to deciding what to invest in, I’m a huge proponent of simplicity (especially for a retirement account when you have a very long time horizon). One great option that is simple and effective is something called a “3-fund portfolio.”
A 3-fund portfolio is traditionally a portfolio with a US stock market index fund, an international index fund, and a bond market index fund. Your stock index funds would be weighted according to market cap and your bond weighting would be depending on your time to retirement. While I suggest you learn about the reasoning behind all of this, you can actually invest in a 3-fund portfolio through a single “fund of funds” (one mutual fund with several mutual funds within it). These funds are called target-date retirement funds, and Vanguard has several options.
If you want to know which funds is best for you, visit this link here. Target date retirement funds have, as the name would suggest, a “target date” for when you want to retire. These typically a broken up into 5-year increments where you would pick the year closest to when you want to retire.
For example, if you are 25 years old and want to retire at age 50, you would want to pick VFIFX, the 2050 target retirement fund. As you approach 2050, your investment portfolio will slowly get more conservative to protect you from a market crash before you officially retire.
Once you pick this fund, this is all you need to invest in as this single fund will give you all of the diversification you need to build wealth.
Part 3: Set up automatic investments
Part 3 is where the magic happens — when you actually contribute money to your investments. Some refer to this part as the “boring middle.” You’re on your way to a wealthy retirement, but it takes some time. Don’t worry though, you WILL get there if you stick it out and are consistent with your investments.
Step 1: Go to the “transact” dropdown menu and click “automatic investments”
Step 2: Add automatic transaction
Step 3: Set up automatic investments
Below the screenshot seen here, select the account that you are going to establish an automatic investment to. If you selected to open an IRA in Part 1, it will appear here.
Step 4: If this is your first time investing, purchase shares of the fund first
If you haven’t set up any automatic investments or purchased any shares before, make your first contribution here. After this, you will be able to set up the automatic contributions.
Step 5: Select your automatic contribution amount
At this screen, you will be able to select “Maximize your annual IRA contribution” or enter a specific amount. If you maximize the contribution, you will contribute up to the limit ($6,500 in 2023 and $7,000 in 2024).
You will also be able to input the fund from Part 2 that you selected here (assuming you have completed step 4 before this).
Step 6: Wait
Congratulations, if you’ve gotten here, you’ve set yourself up to be a millionaire. If you are curious about how much money you will have, go to this website here and test out some scenarios with your contribution, timeframe, and different rates of return (ranging from 5–8% would be safe).
Here is one example if you maxed out your IRA for 35 years (not factoring in any limit increases that will come after the 2024 IRA limit):
Conclusion
This guide walked you through step-by-step instructions on how to open up an investment account with Vanguard, choose your target date fund, and set up automatic investments. Assuming you have a stable income over the timeframe that you contribute automatic investments, this is one of the most sure-fire ways to build wealth over the course of your career.
If you liked this article and want to see more for other brokerage firms or investment accounts, leave a comment and I can continue to create more guides like this.
