Planning for retirement early is crucial, as time in the market can compound your returns with the economy. If you are in your late 30s and have up to $100,000 in savings, you could retire comfortably a millionaire in the next 17 years. To convert your $100,000 into a million dollars, you need a stock portfolio that can give you a 12% average annual return.
How to build a portfolio that earns for you
A 12% average annual return won’t be possible with dividend stocks alone. A well-diversified portfolio across dividend stocks for passive income and growth stocks for wealth creation can give you a self-sustaining portfolio. Here’s how your retirement savings will compound and earn for you while you enjoy your retirement.
| Year | Investment | Investment Return @ 12% | Total Amount |
| 2024 | $100,000 | $12,000.0 | $112,000.0 |
| 2025 | $6,000 | $13,440.0 | $131,440.0 |
| 2026 | $6,000 | $15,772.8 | $153,212.8 |
| 2027 | $6,000 | $18,385.5 | $177,598.3 |
| 2028 | $6,000 | $21,311.8 | $204,910.1 |
| 2029 | $6,000 | $24,589.2 | $235,499.4 |
| 2030 | $6,000 | $28,259.9 | $269,759.3 |
| 2031 | $6,000 | $32,371.1 | $308,130.4 |
| 2032 | $6,000 | $36,975.6 | $351,106.0 |
| 2033 | $6,000 | $42,132.7 | $399,238.8 |
| 2034 | $6,000 | $47,908.7 | $453,147.4 |
| 2035 | $6,000 | $54,377.7 | $513,525.1 |
| 2036 | $6,000 | $61,623.0 | $581,148.1 |
| 2037 | $6,000 | $69,737.8 | $656,885.9 |
| 2038 | $6,000 | $78,826.3 | $741,712.2 |
| 2039 | $6,000 | $89,005.5 | $836,717.7 |
| 2040 | $6,000 | $100,406.1 | $943,123.8 |
| 2041 | $113,174.9 | $1,056,298.6 |
Suppose you start with $100,000 in savings and invest in stocks that give a 12% average annual return. While these savings can give you a head start, you should invest regularly to retire with a sizeable portfolio.
A $6,000 annual investment through the Tax-Free Savings Account for the next 17 years can grow your retirement pool to $943,000. After 17 years, even if you don’t contribute, your portfolio will automatically earn you more than $100,000 annually. You can live off your annual returns.
Where to invest $100,000 savings
Now is a ripe time to invest $100,000 savings in stocks, as rising interest rates have corrected inflated stock prices. Some Dividend Aristocrats are available at their 52-week low, giving you an opportunity to lock in over 7% annual dividend yield.
One stock for passive income in retirement
BCE (TSX:BCE) stock is at its pandemic low due to overall market weakness and losses from Bell Media. BCE has been streamlining its news operations, which incur $40 million in annual operating losses, as it is losing advertising revenue. It expects to lose over $250 million in annual phone revenues from this restructuring.
The short term will be challenging as the telecom and media companies undergo a generational shift amid a weak economic environment. But BCE will enjoy long-term secular growth 5G will bring through artificial intelligence (AI) at the edge.
Now is a good time to invest a lump sum and lock in a 7.4% dividend yield. The company has not cut dividends in the last +40 years and is unlikely to break this trend. In the worst-case scenario, it might pause or slow its 5% annual dividend-growth rate.
You could consider investing $30,000-$35,000 in a BCE dividend-reinvestment plan (DRIP) and compound your dividend income.
Two stocks for capital appreciation
Dye & Durham (TSX:DND) is a due diligence, task and workflow management software for legal and financial professionals. The company is currently in losses as its biggest revenue source, the real estate industry, is facing headwinds. Moreover, DND piled up debt on its balance sheet due to its aggressive acquisition spree in the last few years.
DND management is focusing on reducing debt and improving cash flow. The company has the potential to recover as the real estate market revives. Till then, the stock could see a downtrend if fears of a recession materialize. You could invest $5,000-$6,000 and hold it till the stock recovers to its normal trading price of over $20, representing a 47% upside.
Another growth stock is Ballard Power Systems (TSX:BLDP), which is working on hydrogen fuel cells. This technology is still in the early stages as the cost of producing hydrogen cells is high. Hence, it will take a while before Ballard Power Systems can show sizeable gains. But once the technology becomes feasible, the stock could grow by leaps and bounds and make up for lower returns of other stocks.
