Estimating the amount of money you need to retire is the first step in achieving financial independence. For many, a $1 million nest egg will be sufficient to live a comfortable retirement. If you are just starting out, achieving $1 million in investments can seem like a daunting task. However, by investing in the right companies, you can retire in 20 years with as little as $30,000 in capital.
To do so, investors will need to invest in companies that can achieve a compound annual growth rate (CAGR) of at least 19.16%. Although this may seem like a lot, many TSX-listed stocks have a history of either meeting or exceeding this rate.
To achieve such a high rate of return, investors will need to take on additional risk. However, the tech industry has proven to be one of the best places for investors to park their cash over the past decade. As we are witnessing an accelerated shift to conducting business online, they are likely to also outperform over the next decade.
To limit risk, it is best to invest in a strong management team. There is arguably none better than Constellation Software. Since the company did away with conference calls, investors have to put their full faith in management to help them retire in 20 years.
This faith has been well rewarded. Over the past decade, Constellation shareholders are sitting on total gains of 3,620%. A $10,000 investment in the company 10 years ago would be worth $371,620 today. This is equal to a CAGR of 43.55% – more than double the required rate of return we are looking for.
Management has an incredible track record of scooping up companies and integrating them into the fold. It is a serial acquirer, and there is perhaps no better industry consolidator.
Constellation has averaged 17% annual earnings growth over the past five years, and it is a rate that is accelerating. Analysts expect earnings to grow at an annual rate of 25% over the next few years. This should be more than enough for investors to achieve returns that will put them on the right path to retire in 20 years.
A leading logistics company
Another strong candidate to help investors to early retirement is Descartes Systems. This logistics company has a 10-year CAGR of 26.71%. A $10,000 investment in the company would be worth $106,690 today. Once again, this is more than enough to achieve the rate required to retire in 20 years.
The best news is that the company should exceed historical growth rates. Over the past five years, earnings have grown by approximately 14% annually. Over the next five, analysts expect earnings growth of 17% annually. Not surprisingly, Descartes performance places it among the best technology stocks on the TSX Index.
Given the current environment, the demand for Descartes services from the transportation and logistics, distribution, manufacturing, and retail industries is likely to remain strong. In fact, one could argue that the lasting effects of the pandemic will be a boon for the company for years to come. It’s a good bet to help investors retire in 20 years.
Retire in 20 years
Turning $30,000 into $1 million is a realistic goal. To do so, investors will need to identify companies with a proven history and strong outlook. Constellation Software and Descartes Systems are two of Canada’s premier technology companies.
For investors with an appetite for taking on additional risk, here is another technology company worth looking into.
One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting...
Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago - before it skyrocketed by 1,211%!
Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Mat Litalien has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Software.