Many roads lead to the same destination.
Retiring comfortably doesn't happen by accident. It often takes years of dedicated work and savings. Fortunately, our friend, compounding, is there to help us out. Most wealthy people invest their money to grow it instead of stuffing every dollar into a savings account.
If you surveyed 100 millionaires, you'd probably meet very few who got that way without investing in something that appreciated in value over the years.
Growing from $100,000 to $1 million can seem daunting -- a tenfold increase. Don't fret; it's not as complicated as it looks.
Here are three ways to get the job done in time for retirement.
1. Ride the S&P 500
The simplest method of building wealth is to invest in the American economy. The S&P 500 is an index of 500 prominent American companies, often representing the best businesses the United States has to offer. The good thing about the S&P 500 is that using it to build wealth is a very straightforward idea: buy and hold.
Stocks can be volatile from week to week and even year to year. But the stock market has always risen to new highs if you give it long enough:
^SPX data by YCharts
The S&P 500 has a historical annualized return of about 10% over time, meaning investors can expect an investment to double every seven years on average. Buy a low-cost index fund that tracks the S&P 500; your $100,000 could grow to $1 million in about 23 years. You'll get there even faster by investing additional funds. Add $500 monthly and reach $1 million in just 19 years.
Of course, past results don't guarantee future outcomes, but history is on investors' side. If the U.S. stock market were permanently wiped out, you would probably have bigger problems than your portfolio.
2. Invest in blue chip stocks
Some people want to take a more hands-on approach to their investments and pick individual stocks to own. There's nothing wrong with that, especially if you enjoy learning and studying what you own. But your retirement nest egg is not the money to bet on the hot stock tip you heard at the bar.
Instead, set yourself up for success by investing in a diversified portfolio of blue chip stocks. These are the household names that everyone knows. Think Amazon, Visa, etc.
Pick the right stock, like an Amazon, and you could reach your goals much faster:
^SPX data by YCharts
Just remember that individual stocks carry more risk than the broader market, and even household names can be poor investments if the business isn't fundamentally sound.
Diversify, think long-term, and stay informed about your stocks; a blue-chip portfolio could be very kind to your retirement efforts.
3. Own real estate
Property is society's oldest form of wealth, and real estate is still a great way to make money today. There are more options than ever to get investment exposure to real estate, which can provide both passive income and capital appreciation if the property's value increases.
Investors can own property outright or buy shares of real estate investment trusts (REITs), publicly traded companies that lease property and distribute profits to shareholders. Owning property outright can have complicated tax implications, so ensure you're adequately informed and don't hesitate to consult a tax professional. Being a landlord can also be stressful and hard work sometimes, so it's not for everyone.
REITs are a great alternative that can easily be included in a broader stock portfolio. However, not every REIT is created equal, so check a company's track record and credit rating to gauge how well management operates the business.
There's no wrong answer
The cool part about building wealth is that there are no wrong answers as long as your money is working for you. People have different skills and backgrounds, so one person might feel more comfortable owning real estate. At the same time, others don't want to closely monitor their investments and are better off owning index funds.
You might dabble in all three, creating even more diversification across your nest egg.
There are no secret tricks to growing your money. It's about following a proven plan that suits your style. Take action, and you'll be surprised by how much money you can retire with.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Visa. The Motley Fool has a disclosure policy.
FAQs
If you keep saving, you can get there even faster. If you invest just $500 per month into the fund on top of the initial $100,000, you'll get there in less than 20 years on average. Adding $1,000 per month will get you to $1 million within 17 years.
What is the rule of 72 motley fool? ›
Let's say that you start with the time frame in mind, hoping an investment will double in value over the next 10 years. Applying the Rule of 72, you simply divide 72 by 10. This says the investment will need to go up 7.2% annually to double in 10 years. You could also start with your expected rate of return in mind.
What is the Motley Fool's investment strategy? ›
We focus the most on the business fundamentals of the companies in which we invest, rather than on their stocks' short-term price changes. When we recommend a stock to any user of our premium subscription services, we are recommending that you buy and hold the stock for a minimum of 5 years.
What is the best thing to invest $100000 in? ›
Investment Options for Your $100,000
- Index Funds, Mutual Funds and ETFs.
- Individual Company Stocks.
- Real Estate.
- Savings Accounts, MMAs and CDs.
- Pay Down Your Debt.
- Create an Emergency Fund.
- Account for the Capital Gains Tax.
- Employ Diversification in Your Portfolio.
The timeline for achieving this goal depends on your returns. For example, a 10% average annual rate of return could transform $100,000 into $1 million in approximately 25 years, while an 8% return might require around 30 years.
How much will 100k be worth in 30 years? ›
Answer and Explanation: The amount of $100,000 will grow to $432,194.24 after 30 years at a 5% annual return. The amount of $100,000 will grow to $1,006,265.69 after 30 years at an 8% annual return.
What is the 4% rule Motley Fool? ›
It states that you can comfortably withdraw 4% of your savings in your first year of retirement and adjust that amount for inflation for every subsequent year without risking running out of money for at least 30 years.
How to double the money in 5 years? ›
The classic approach to doubling your money is investing in a diversified portfolio of stocks and bonds, which is likely the best option for most investors. Investing to double your money can be done safely over several years, but there's a greater risk of losing most or all your money when you're impatient.
Does the S&P 500 double every 7 years? ›
According to his math, since 1949 S&P 500 investments have doubled ten times, or an average of about seven years each time. In some cases, like 1952 to 1955 or 1995 to 1998, the value of the investment doubled in only three years.
What is David Abrams investment strategy? ›
His firm, established in 1999 and based in Boston, prides itself on an opportunistic approach, focusing on long-term investments in a concentrated portfolio that spans various asset classes including stocks, debt, and distressed assets.
A three-fund portfolio is an investment strategy that involves holding mutual funds or ETFs that invest in U.S. stocks, international stocks and bonds. The strategy is popular with followers of the late Vanguard founder John Bogle, who valued simplicity in investing and keeping investment costs low.
What are the 4 golden rules investing? ›
They are: (1) Use specialist products; (2) Diversify manager research risk; (3) Diversify investment styles; and, (4) Rebalance to asset mix policy. All boringly straightforward and logical.
How to invest 100K to make $1 million? ›
Buy a low-cost index fund that tracks the S&P 500; your $100,000 could grow to $1 million in about 23 years. You'll get there even faster by investing additional funds. Add $500 monthly and reach $1 million in just 19 years. Of course, past results don't guarantee future outcomes, but history is on investors' side.
Can I live off the interest of $100,000? ›
Interest on $100,000
If you only have $100,000, it is not likely you will be able to live off interest by itself. Even with a well-diversified portfolio and minimal living expenses, this amount is not high enough to provide for most people.
How much interest will 100K earn in a year? ›
Competitive savings account rates
The best widely available high-yield savings accounts currently earn an APY of around 4.60 percent. An amount of $100,000 in an account earning this rate will earn around $4,600 after a year, for a total of $104,600.
How to turn 100K into $1 million book? ›
A thorough introduction to finance from the people behind BizKid$, 'How to Turn $100 into $1 Million' includes chapters on setting financial goals, making a budget, getting a job, starting a business, and investing smartly – and how to think like a millionaire.
How long will it take $100,000 to become $1 million if it is allowed to grow at 10% per annum? ›
Nobody can guarantee what stocks will do, but those of us who invest do so with the expectation that the overall market will likely rise over time. At the market's long-run historical return rate of around 10% per year, $100,000 will turn into $1 million all on its own in around 24.2 years.
How long does it take 100K to double? ›
Years It Takes to Double
So, to use this formula for the $100,000 investment mentioned above, with a 6% rate of return, you can determine that your money will double in 11.9 years, which is close to the 12 years you'd get if you simply divided 72 by 6.
How many $100000 does it take to make a million? ›
Answer and Explanation:
There are ten hundred thousands in one million. 1,000,000 divided by 100,000 equals 10. Or, 10 multiplied by 100,000 equals 1,000,000.
