In spite of what a lot of bankers will tell you, it is not a requirement to always “save more money” with every passing year to be able to retire in the future. For those who choose to keep fees low by investing for themselves, higher returns are much easier to attain.
For 30-year-old investors who begin with nothing and save $300 per month, it is almost guaranteed that they will become millionaires over time. Let’s take a look at the given rates of return and the outcomes.
Although a 5% rate of return will not make you a millionaire by the age of 65, you will retire with $340,827 and be able to enjoy a number of activities. By taking more risk and realizing a 7.5% rate of return, the final amount saved grows to no less than $609,228 — a major difference. By investing diligently, investors will be substantially better off in retirement.
For the most diligent, however, a 10% rate of return will grow to no less than $1,138,991, which translates to millionaire status. The only thing that was required was patience (in addition to the aforementioned diligence).
Is this even possible?
The short answer is yes.
When we consider shares of Canada’s largest companies and the sectors in which they operate, we find a few examples of investments that have returned more than 10%. At a price of $100 per share, Royal Bank of Canada (TSX: RY)(NYSE: RY) has compounded at a rate slightly less than 10% while offering investors a generous and growing dividend. At the current time, the yield is no less than 3.75%.
As the largest bank in the country (by market capitalization), there is no reason for things to slow down. After several years of low oil prices and a challenging energy sector, the major profit drivers seem to be lining up once again. As Western Canada continues to improve, there will no shortage of new business for the bank to capitalize on once again.
For investors seeking a name with less financial risk, consider shares of BCE Inc. (TSX: BCE)(NYSE: BCE). BCE is the parent company of Bell. It currently offers a dividend yield of 5.5% and has compounded at a rate of 5% over the past five years. As the company continues to enjoy a stranglehold on many of our favourite programs, investors (both young and old) may want to consider this name as a pillar in their portfolios.
The final name to consider is none other than Home Capital Group Inc. (TSX: HCG). In spite of not being the oligopoly-type of investment that many would want, the opportunity for profit is substantially high with this name. As the company carries tangible book value of almost $24 per share and trades at around $15 per share, it may not take very long to obtain a 10% rate of return with this name. The caveat, however, is that there may be a need to find another great “deal” in only a few months’ time.
