Think it’s a challenging task to get to a $1,000,000 stock portfolio? Here are some stock tips to help you get to this financial goal sooner than you think!
Investing for higher returns
When you invest in stocks instead of other asset classes, you should already lock in higher returns for the long term. Long-term average Canadian and U.S. stock market returns have historically been in the range of 7-10% per year.
However, you can carefully choose your stocks to earn even greater returns than that. The tradeoff may be experiencing above-average levels of volatility, taking on greater risks, or having a concentration in certain areas of stocks.
For example, personally, I have a meaningful portion of my portfolio in certain Chinese stocks like Alibaba and Tencent that are listed on the U.S. exchanges. I believe they will provide above-average growth compared to many other names.
Alibaba n particular appears to be a good value right now. Despite the discounted shares today, it still delivered five-year returns of more than 31% per year due to its high growth from having a leading position in online and mobile commerce in China.
On the other hand, Tencent, a conglomerate in internet content and information — essentially a social networks, online games, online advertising, and fintech and business services company in one — looks fully valued. The growth stock has delivered five-year returns of nearly 38% per year.
Aside from their high returns potential, they also expose my portfolio to unique risks. Here’s to name a few. Just not too long ago, many Chinese stocks were threatened to be delisted from the U.S. exchanges.
As large companies in new industries in China, they’re also subject to Chinese government regulations, which are not necessarily a bad thing for the society but could dampen the companies’ growth. Of course, Chinese companies also give the general perception of having the greater risk of financial reporting fraud.
Before you reach for higher stock returns, identify the risks you’re exposing to your portfolio and size your allocations accordingly.
Saving more
When it comes to stock investing, choosing the right ideas for satisfactory returns are important. But when starting out on your investing journey, your savings rate is just as crucial.
If you save and invest $500/$1,000 a month for a 7%/10%/20% annualized return, your portfolio will grow to these sizes.
| Year | Portfolio ($500/7%) | Portfolio ($500/10%) | Portfolio ($500/20%) |
| 0 | $0 | $0 | $0 |
| 1 | $6,420 | $6,600 | $7,200 |
| 2 | $13,289 | $13,860 | $15,840 |
| 3 | $20,640 | $21,846 | $26,208 |
| 4 | $28,504 | $30,631 | $38,650 |
| 5 | $36,920 | $40,294 | $53,580 |
| 6 | $45,924 | $50,923 | $71,495 |
| 7 | $55,559 | $62,615 | $92,995 |
| 8 | $65,868 | $75,477 | $118,793 |
| 9 | $76,899 | $89,625 | $149,752 |
| 10 | $88,702 | $105,187 | $186,903 |
| 11 | $101,331 | $122,306 | $231,483 |
| 12 | $114,844 | $141,136 | $284,980 |
| 13 | $129,303 | $161,850 | $349,176 |
| 14 | $144,774 | $184,635 | $426,211 |
| 15 | $161,328 | $209,698 | $518,653 |
If you invest $1,000 every month for returns of 20% per year over 15 years, you would have saved $180,000 in aggregate but would have grown it to more than $1 million!
Your neighbour who only starts doing the same thing as you 10 years later, will only arrive at $107,159 at your 15-year mark. Saving and investing early and regularly is therefore critical!
| Year | Portfolio ($1,000/7%) | Portfolio ($1,000/10%) | Portfolio ($1,000/20%) |
| 0 | $0 | $0 | $0 |
| 1 | $12,840 | $13,200 | $14,400 |
| 2 | $26,579 | $27,720 | $31,680 |
| 3 | $41,279 | $43,692 | $52,416 |
| 4 | $57,009 | $61,261 | $77,299 |
| 5 | $73,839 | $80,587 | $107,159 |
| 6 | $91,848 | $101,846 | $142,991 |
| 7 | $111,118 | $125,231 | $185,989 |
| 8 | $131,736 | $150,954 | $237,587 |
| 9 | $153,797 | $179,249 | $299,504 |
| 10 | $177,403 | $210,374 | $373,805 |
| 11 | $202,661 | $244,611 | $462,966 |
| 12 | $229,688 | $282,273 | $569,959 |
| 13 | $258,606 | $323,700 | $698,351 |
| 14 | $289,548 | $369,270 | $852,421 |
| 15 | $322,657 | $419,397 | $1,037,306 |
The Foolish takeaway
By saving and investing early and regularly, you don’t necessarily need to aim for +20% rates of returns (and expose your portfolio to greater risks) but still get to a $1,000,000 portfolio in a reasonable time frame. Starting with $0, saving and investing $800 a month for 12% returns per year, you’d arrive at more than $1 million in 23 years.
Currently, on the TSX, you can investigate Alimentation Couche-Tard and Brookfield Asset Management that can potentially deliver +12% returns per year over the next three to five years.
