You spend the majority of your life working and saving for retirement. Most investors in developed countries believe they need to save at least $1 million to lead a comfortable life in retirement.
Everyone wants to be a millionaire. While money can’t buy happiness, it can buy everything else, which can help improve your happiness quotient. But a majority of people might feel it’s impossible to reach this financial goal.
It’s imperative to have a strategy or a road map that will help you build wealth over time. Let’s take a look at three proven strategies rich Canadians have used to amass massive wealth historically.
Real estate investing
Real estate has created the maximum number of millionaires globally. There are thousands of real estate moguls who have invested in multiple income-generating properties resulting in a passive stream of cash flows. In addition to monthly rents, the underlying property value should also appreciate depending on the demand-supply metrics of the location.
But this strategy is capital intensive. For instance, the average home price in Canada is over $600,000, and this number would be significantly higher in major cities such as Toronto and Vancouver. So, you might have to take on a considerable amount of debt to kick off your real estate investment journey.
Additionally, investors also need to have enough cash for a down payment and a decent credit score. These properties should also be located in desirable neighborhoods and close to mass transit, making it easy to liquidate the investment.
Ideally, the rental income on a property should exceed monthly interest payouts, allowing owners to reinvest additional cash flows in other properties. This process will help you reach a net worth of $1 million in a few years.
Starting a business
It’s exciting to be your own boss and start your entrepreneurial journey. However, before starting a business, you need to ensure it is easily scalable, driving future revenue and cash flows higher. You can either reinvest the wheel and launch a disruptive product or solution in the market. Alternatively, you can also buy fast-food franchises and benefit from an already existing brand name.
But owning a business comes with significant risk, as less than 10% of the businesses are successful in the long term.
Investing in the stock market
The third and final strategy is to invest in the stock market, an asset class that has already generated massive wealth for shareholders. But you need to be disciplined and focused to benefit from the power of compounding.
If you invest $1,500 each month for 17 years, your portfolio will balloon to $1 million, given annual returns of 12%. You can also invest a bit over $5,000 each month for 10 years to create a $1 million portfolio if you are late to start this investment journey.
While the S&P 500 index has returned 14% annually in the last 14 years, you can aim to beat the broader markets by investing in blue-chip tech stocks such as Microsoft (NASDAQ: MSFT), which is one of the largest tech companies globally.
Microsoft leads multiple business segments such as enterprise software, gaming, and public cloud, providing it with a wide economic moat and predictable cash flows. It also enjoys a first-mover advantage in the artificial intelligence space, which is forecast to surpass US$1 trillion by the end of 2030.
The Foolish takeaway
All three options are great options to get rich. But the easiest method for the average working individual to create a $1 million nest egg is to invest in the stock market and let the power of compounding do its work.
