How To Build a $200,000 Portfolio with Coffee Money

News media has spent a lot of time analyzing Millennials, and there are several key characteristics that set this generation apart from parents and grandparents. One of the biggest is related to financial habits. Rates of Millennial homeownership are lower than in previous generations, and collectively, the group is behind on other traditional financial milestones. 

Millennials have generally delayed buying homes because they don’t have the necessary financial resources – and, in many cases, they don’t have confidence that the economy will offer them the long-term financial stability required to make 30 years of mortgage payments.

After all, this generation grew up during the Great Recession, and its youngest members were just graduating from college when the COVID-19 pandemic changed the world. 

Older generations have been quick to point out where Millennials went wrong in their finances, and the cliche that Millennials are overly fond of premium coffee and avocado toast makes it into almost every article and interview.

Needless to say, the situation is far more complex than excessive snacking, but there is a nugget of truth in the overused admonition to “make coffee at home.” 

The world’s best investors know that small savings add up. When those savings are placed in the right type of asset, the long-term results can be astonishing.

Here’s how to build a $200,000 portfolio with coffee money. 

Is $100 Enough To Start Investing? 

Coffee is often cast as a villain in conversations about financial discipline, but that’s not because coffee is a malevolent force designed to drain wealth from unsuspecting consumers.

Instead, the suggestion to avoid costly takeout coffee is intended as an example of how small changes in spending can transform financial circumstances.

Saving $3 a day – the price of a basic cup of coffee – adds up to roughly $100 a month. That $100 a month can turn into $200,000 given enough time and the right investment vehicle. 

Where Should You Invest As A Beginner? 

There is endless discussion about which stocks are best and whether specific companies will deliver short-term returns for investors. The truth is that short-term investing is always a gamble. Even blue chips have off-quarters, and macroeconomic conditions can temporarily decimate entire industries. 

Successful investors don’t concern themselves with whether a stock will go up over the next quarter or even the next year. They look for quality companies with sustainable competitive advantages that will make it possible to survive internal and external challenges over decades. Then, they buy those stocks at a fair price – or at a discount whenever possible. 

Top investors don’t worry about which stocks are getting a lot of social media attention, and they don’t sell when the going gets tough. They have the discipline to ignore short-term volatility, and, as Warren Buffett advised in one memorable quote, they are “fearful when others are greedy and greedy when others are fearful.” 

The trouble is that identifying the best stocks requires a lot of research, and that takes a lot of time. On top of that, conducting effective research and analysis requires specialized knowledge, including the ability to read and understand in-depth financial reports. That’s not always practical – or even possible – for retail investors. Fortunately, there is an alternative. 

Warren Buffett is widely considered one of the most successful investors of all time, and he certainly possesses the knowledge, skills, and ability to select individual stocks that are likely to bring in long-term profits. However, even he acknowledges that the best investment for most people is a basic S&P 500 ETF (exchange-traded fund). This type of fund tracks the S&P 500 index, which averages annual returns of about 10 percent. 

The results of investing $100 a month in an S&P 500 ETF with average returns of 10 percent per year might look like this: 

• 10 years – approximate total balance of $20,400
• 20 years – approximate total balance of $73,000
• 30 years – approximate total balance of $210,000
• 40 years – approximate total balance of $564,000
• 50 years – approximate total balance of $1,483,000

That’s pretty impressive for just $3 per day – the price of a cup of coffee. 

What Is An ETF? 

ETFs or exchange-traded funds offer the best features of stocks and the best features of mutual funds in one convenient package. ETFs track an underlying index, so in the case of an S&P 500 ETF, the fund manager collects a basket of securities that matches the S&P 500 index. These include 500 of the largest companies in the United States, so a wide variety of industries are represented. 

Investors can purchase ETF shares through standard online brokerage accounts – they are traded just like stocks. The beauty of ETFs is that each share offers instant diversification – something that is hard to manage in a portfolio of individual stocks.

ETFs are considered passive funds in that there is no need for fund managers to actively manage holdings. That keeps expenses low – particularly when compared to actively-managed mutual funds. 

Three of the best S&P 500 ETFs include: 

• Blackrock iShares Core S&P 500 ETF
• State Street SPDR S&P 500 ETF
• Vanguard S&P 500 ETF

How To Start Investing 

Self-directed online brokerage firms make it easy to build a $200,000 portfolio with coffee money. Some of the most popular investment platforms include: 

• E*TRADE
• Fidelity Investments
• Interactive Brokers
• Robinhood
• tastytrade

Simply enter basic personal information and, in some cases, upload identification documents, then fund the account with an electronic transfer from an existing checking or savings.

Once the funds arrive in the brokerage account, buying ETF shares only takes a moment. Search for the preferred fund, choose the number of shares, and select “buy.”

Most platforms offer the option of regular automated transfers into the account, so setting aside $100 a month becomes routine. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.