This simple stock ETF could turn £99 a week into £594,698

Building wealth in the stock market doesn't have to be complicated today. Simply purchasing a low-cost index fund and then adding to it each week or month will be enough.

Because of the power of compound returns, even modest sums can eventually lead to an astonishing end result.

Keep things nice and simple

He Vanguard FTSE 100 UCITS ETF (LSE: VUKE) tracks the performance of the UK's 100 largest companies. The list is rebalanced quarterly to reflect the rise and fall of companies' market value.

In the latest reorganization, a struggling fashion house Burberry was replaced by insurance Hiscox. It's a bit like teams being relegated and promoted to the Premier League.

Through a combination of share price gains and dividends, the FTSE 100's historical return is just under 8%. There is no guarantee that this will continue in the coming years. It could be more or less.

However, if this trend continues, then the return of the Vanguard FTSE 100 ETF should reflect this.

There are two versions of the fund for investors: distributive and cumulative. The first is where income is paid, while the second automatically reinvests dividends into the fund.

What's in it?

Here are the ETF's top 10 holdings (as of August 31).

These are all truly global companies. I personally have four of them in my own portfolio (AstraZeneca, HSBC, British American Tobacco and Diageo), and I've had my eye on data analytics giant RELX for years.

One thing to keep in mind here is China. Beijing just announced its largest economic stimulus package since Covid. But if that fails to boost growth and the economy worsens, it could drag down FTSE 100 commodity stocks and hit the index's performance.

Starting from scratch

Let's assume I can afford to invest £99 per week (equivalent to £429 per month) in this ETF and it offers the same returns in the future. This is what would happen after 10, 20 and 30 years.

As we can see, the gains start slowly and then accelerate as the capitalization really starts to take hold. In fact, the power of exponential returns is so great that the total would be almost £3 million after 50 years.

After a century, that would be more than £135 million!

However, unless there is a major breakthrough in the science of longevity, I think 20 or 30 years is a more realistic time frame for most investors than a century.

Why settle for this?

This is with just £99 per week and an average return of 7.9%. But why stick with the FTSE 100? The average historical returns of S&P 500 (the 500 largest US companies) is more like 10.5%.

If I can build a stock portfolio, or a combination of different index trackers, that matches this performance, it would make a big difference to my profitability. So would adding more money.

Let's re-run the numbers using an average return of 10.5% and £150 per week invested.

In this scenario, the figure after 20 years would not be far from the total of 30 years in the first example. That's the difference a couple of percentage points of investment returns can make over time!