The primary aim for most retail investors is to build wealth for retirement. However, once you start working, it’s easy to lose sight of your retirement goals due to short-term distractions and the pressures of everyday hustle.
Canadian investors should note that retirement planning should always be on top of your priority list, as you can benefit from the power of compounding over time.
So, let’s see how you can grow $100,000 into $1 million for retirement savings.
Investing in index funds
One way to reach your $1 million goal is by investing in low-cost index funds such as the S&P 500. In the last 20 years, the S&P 500 index has returned roughly 10% to shareholders after adjusting for dividends.
By investing in these funds, you can benefit from diversification while lowering overall risk. For instance, the top holdings of the S&P 500 index include some of the largest companies in the world, such as Apple, Amazon, Nvidia (NASDAQ:NVDA), and Microsoft.
If you have a corpus of $100,000 and invest $1,000 a month at an annual rate of 10%, you should reach the $1 million milestone within 16 years.
Investing in high-yield bonds
Fixed-income instruments such as bonds are ideal for investors with a low-risk appetite. In the last two years, federal banks have raised interest rates significantly, enabling investors to earn 5% on certain instruments.
However, it would take you more than 26 years to turn a $100,000 investment into $1 million at an annual return of 5% if you contribute an additional $1,000 each month.
Investing in dividend-growth stocks
Investors with a higher risk exposure can consider investing in quality dividend growth stocks. Historically, dividend growth stocks have delivered market-thumping gains to investors, making them a perfect choice if you want to accelerate your retirement plans.
In the last 20 years, several dividend-growth stocks south of the border, including Starbucks and Home Depot, have turned a $100,000 investment into more than $1 million.
Investing in high-growth stocks
What do companies such as Tesla, Microsoft, and Nvidia have in common? Each of the three companies could have grown a $100,000 investment into more than $1 million in the last decade.
In fact, Nvidia, a trillion-dollar chip manufacturing company, has returned a staggering 14,540% to shareholders since January 2014. So, it would have turned a $10,000 investment into $1.46 million in just 10 years.
Here, it is imperative to identify megatrends and bet on companies with the ability to gain traction in rapidly expanding addressable markets in the upcoming decade. There are several megatrends that are exciting right now, which include clean energy, autonomous cars, blockchain tech, and artificial intelligence.
The Foolish takeaway
So, which is the best strategy for investors to grow their wealth and reach their retirement goals? Well, it depends on factors such as your age, lifestyle, and risk tolerance levels.
I believe it makes sense to diversify your investments and begin your investment journey early. A 30-year-old with $100,000 in savings can invest $50,000 in the S&P 500 index, $25,000 in debt, and the rest in dividend and growth stocks.
