Can you retire a millionaire with ETFs alone?

Can you retire a millionaire with ETFs alone? The simple answer is yes, you can. Here's how.

You don't have to beat the market

It's a common belief that investors get rich by picking individual stocks and beating the market. While that can be true, stock picking isn't the only path for investors to build wealth. Funds -- ETFs in particular -- can also make you a millionaire, even though many of them never beat the market.

In truth, the broader market provides enough growth potential to build a seven-figure retirement fund. Follow the four rules below to harness that market power and achieve your wealth goals without having to pick a single stock.

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1. Choose efficiency

Funds have administrative expenses that they pass along to shareholders. Those expenses dilute the returns of the underlying stock portfolio. If you choose cost-efficient funds, a greater portion of the ETF's earnings flow through to your bottom line.

Expense ratio is the metric you'll use to compare funds on cost efficiency. You'll see this number presented as a percentage that's some fraction of 1%, say 0.10%. A 0.10% expense ratio equates to expenses of $10 for every $10,000 you have invested.

Some index ETFs have expense ratios that are close to zero. iShares Core S&P 500 ETF and Vanguard S&P 500 ETF, for example, both have expense ratios of 0.03%.

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If your 401(k) doesn't offer low-cost ETFs, ask your administrator if your account has a brokerage window. Or, invest in these funds in an IRA or taxable brokerage account instead.

2. Plan your asset allocation

Asset allocation is the composition of your portfolio across different asset classes, like stocks and bonds. Stocks deliver growth, with some risk, while bonds provide stability. You can mix and match the two to tailor your portfolio's risk and reward characteristics.

Since you're targeting millionaire status by retirement, you'll want a higher percentage of stock ETFs versus bond ETFs. If retirement is still decades away and you can handle some volatility, you could hold up to 90% stock funds. Start with a lower percentage if retirement is within 15 years or if stock market volatility makes you nervous.

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3. Invest generously and consistently

To amass seven figures with ETFs, you must invest generously and consistently -- for decades. The numbers below show monthly contributions required to get to $1 million on different timelines. Note that the monthly contributions could include your employer match.

$2,265 → 20 years 

$1,518 → 25 years 

$1,054 → 30 years 

$748 → 35 years 

$538 → 40 

All scenarios assume average annual growth of 6%, which is a bit less than the stock market's long-term average after inflation. That growth rate should be attainable over 20-plus years in a retirement portfolio that's heavy on stock ETFs.

You can see that the monthly contribution gets unmanageable if you wait too long to start investing. That's your cue to kick this plan off today. Even if you're 30 years out from retirement and you can't afford to contribute $1,000 monthly, invest whatever you can today. You can raise your contribution later as your income increases.

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4. Don't time the market

Whatever happens with the stock market, commit to staying invested and continuing your contributions. If you start pulling back on contributions or selling to avoid losses, you may never hit that million-dollar target.

It may sound counterintuitive, but selling to avoid losses usually lowers your returns. For example, the market drops, so you sell at a lower share price to stop the bleeding. You then wait until the market has stabilized to reinvest. At that point, you buy back your shares at higher prices than when you sold them for. Selling low and buying high creates a loss, which reduces your long-term returns.

If you stay invested when the market goes sideways, you don't have to worry about when to reinvest. You also remain well positioned to benefit when the market recovers.

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Seven figures via ETFs

You can retire a millionaire with ETFs. The strategy is to ride the market's long-term growth trend. For that to work, you must choose low-cost funds, be strategic about your asset allocation, and invest consistently over time -- without getting spooked by market fluctuations.

ETF investing isn't the sexiest way to get rich, but who cares? Retiring a millionaire is sexy on its own, no matter how you get there.