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Millennials: Want to Retire Rich? Start Investing in This 1 Stock Today

David Jagielski | September 20, 2020| More on:

Path to retirement
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Investing and growing your savings is a long-term process that can take many years. That’s why it’s important to start as early as possible. And rather than chasing the next hot IPO that could end up crashing and crippling your portfolio, you’re better off looking for stable investments that can slowly and steadily help you accumulate wealth over the years. It may sound like a boring strategy, but it’s one of the best ways to ensure you retire rich without putting your portfolio in harm’s way.

Bank stocks never go out of style

Investing in a top bank stock is a good way to ensure that your portfolio will continue rising over the years. The Big Five banks in Canada can provide your portfolio with lots of stability, and they’re great sources of dividend income.

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) currently yields around 6.5% per year. But 2020 has been an off year for financial stocks, so let’s assume that on average, it’ll generate dividend income of 5% per year. And let’s say that typically it’ll grow at a rate of 8% every year — that’s about the annual growth it has averaged for the past 20 years (prior to this year, of course). Under this model, I’m also going to assume that dividends are not re-invested into the stock.

But to generate any growth you’ll first need to buy some shares. Rather than a big lump sum, let’s assume you contribute $350 every month and buy shares of Scotiabank. With those assumptions in place, let’s take a look how your wealth might grow if you began investing in the stock at the age of 25:

Age Year Total Contributions Beginning Portfolio Balance Growth Ending Portfolio Balance Dividends Total Dividends Portfolio + Dividends
25 1 $4,200 $4,200 $294 $4,494 $210 $210 $4,704
26 2 $8,400 $8,694 $609 $9,303 $420 $630 $9,933
27 3 $12,600 $13,503 $945 $14,448 $630 $1,260 $15,708
28 4 $16,800 $18,648 $1,305 $19,953 $840 $2,100 $22,053
29 5 $21,000 $24,153 $1,691 $25,844 $1,050 $3,150 $28,994
30 6 $25,200 $30,044 $2,103 $32,147 $1,260 $4,410 $36,557
31 7 $29,400 $36,347 $2,544 $38,891 $1,470 $5,880 $44,771
32 8 $33,600 $43,091 $3,016 $46,108 $1,680 $7,560 $53,668
33 9 $37,800 $50,308 $3,522 $53,829 $1,890 $9,450 $63,279
34 10 $42,000 $58,029 $4,062 $62,091 $2,100 $11,550 $73,641
35 11 $46,200 $66,291 $4,640 $70,931 $2,310 $13,860 $84,791
36 12 $50,400 $75,131 $5,259 $80,391 $2,520 $16,380 $96,771
37 13 $54,600 $84,591 $5,921 $90,512 $2,730 $19,110 $109,622
38 14 $58,800 $94,712 $6,630 $101,342 $2,940 $22,050 $123,392
39 15 $63,000 $105,542 $7,388 $112,930 $3,150 $25,200 $138,130
40 16 $67,200 $117,130 $8,199 $125,329 $3,360 $28,560 $153,889
41 17 $71,400 $129,529 $9,067 $138,596 $3,570 $32,130 $170,726
42 18 $75,600 $142,796 $9,996 $152,792 $3,780 $35,910 $188,702
43 19 $79,800 $156,992 $10,989 $167,981 $3,990 $39,900 $207,881
44 20 $84,000 $172,181 $12,053 $184,234 $4,200 $44,100 $228,334
45 21 $88,200 $188,434 $13,190 $201,624 $4,410 $48,510 $250,134
46 22 $92,400 $205,824 $14,408 $220,232 $4,620 $53,130 $273,362
47 23 $96,600 $224,432 $15,710 $240,142 $4,830 $57,960 $298,102
48 24 $100,800 $244,342 $17,104 $261,446 $5,040 $63,000 $324,446
49 25 $105,000 $265,646 $18,595 $284,241 $5,250 $68,250 $352,491
50 26 $109,200 $288,441 $20,191 $308,632 $5,460 $73,710 $382,342
51 27 $113,400 $312,832 $21,898 $334,730 $5,670 $79,380 $414,110
52 28 $117,600 $338,930 $23,725 $362,655 $5,880 $85,260 $447,915
53 29 $121,800 $366,855 $25,680 $392,535 $6,090 $91,350 $483,885
54 30 $126,000 $396,735 $27,771 $424,507 $6,300 $97,650 $522,157
55 31 $130,200 $428,707 $30,009 $458,716 $6,510 $104,160 $562,876
56 32 $134,400 $462,916 $32,404 $495,320 $6,720 $110,880 $606,200
57 33 $138,600 $499,520 $34,966 $534,487 $6,930 $117,810 $652,297
58 34 $142,800 $538,687 $37,708 $576,395 $7,140 $124,950 $701,345
59 35 $147,000 $580,595 $40,642 $621,237 $7,350 $132,300 $753,537
60 36 $151,200 $625,437 $43,781 $669,217 $7,560 $139,860 $809,077
61 37 $155,400 $673,417 $47,139 $720,556 $7,770 $147,630 $868,186
62 38 $159,600 $724,756 $50,733 $775,489 $7,980 $155,610 $931,099
63 39 $163,800 $779,689 $54,578 $834,267 $8,190 $163,800 $998,067
64 40 $168,000 $838,467 $58,693 $897,160 $8,400 $172,200 $1,069,360

After 40 years, you would have contributed a total of $168,000, generated growth of $729,160 and earned dividend income of $172,200. Combined, your portfolio would be worth $1,069,360.

At that point, you could cash out and use the money as you wish, including investing the full amount into an ETF and living off the dividend income. If you were to invest $1,000,000 in an investment yielding 5% per year, your annual dividend income of $50,000 could potentially be enough to live off, or, at the very least, be a great way to supplement your other retirement income with.

Bottom line

If Scotiabank continues growing its dividend, and if you re-invest the income, then these returns would be even larger. But the point is to show that if you’re able and willing to start investing money into Scotiabank today, you could be in for a big payday when it comes time to retire. It may not be as exciting as buying and trading stocks all the time, but by building your investment steadily over time, you can earn a great return while taking on minimal risk.

There are many other stocks besides Scotiabank that you can invest in, and it may even make sense to use an ETF to provide you with more diversification and stability.

By sticking to a plan and slowly contributing more money over the years, you can make your life a whole lot easier when it comes time to retire.

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 David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

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