How to Save $100k by 2030?

Investing in quality ETFs such as the inflation-beating VSP ETF should help you create game-changing wealth over time.

| More on:
ETF chart stocks

Image source: Getty Images

According to a report from Fidelity, individuals would need around 70% of their income during their working life to maintain the same standard of living in retirement. The 70% figure assumes you don’t have to support your children and have no outstanding mortgage debt. Moreover, this 70% must be adjusted to account for inflation, which means calculating the size of your nest egg is quite complicated.

While most Canadians aim to retire with $1 million in their bank account, reaching this magic number might seem overwhelming at first. However, experts believe that once you touch $100,000 in savings, your journey toward financial freedom will be much easier. The late Charlie Munger explained that the first $100,000 is the toughest to earn but is extremely crucial for building wealth.

So, let’s see how investors can save $100,000 by 2030.

Start saving early and remain invested

A Statistics Canada report states that the average savings rate for Canadian households was around 6.9% in Q1 2024, the highest rate since Q1 2022. This number should move higher, especially if inflation cools down and interest rates are lowered in the next 12 months.

To benefit from the power of compounding, Canadians need to start saving early. Even if we assume a 5% rate of return on your investments, you need to save just $243 per month for 20 years to reach $100,000. However, you need to save $643 per month for 10 years to reach $100,000.

Investors need to create a diversified portfolio consisting of stocks, bonds, and gold, which lowers overall risk. A diversified portfolio has historically created massive wealth for long-term investors by handily outpacing inflation.

The volatility associated with the equity markets makes it extremely difficult to remain invested in this asset class. Alternatively, the S&P 500 Index has returned over 10% annually on average in the past five decades despite multiple economic downturns and bear markets.

Invest in diversified ETFs

Investors should consider gaining significant exposure to exchange-traded funds that track indices such as the S&P 500. The S&P 500 Index holds the 500 largest companies in the U.S. across multiple sectors.

One popular ETF that trades on the TSX is the Vanguard S&P 500 Index ETF (TSX:VSP). The ETF is hedged to the Canadian dollar and shields investors from fluctuations in foreign exchange rates. With more than $3.2 billion in assets, the VSP has almost tripled investors’ returns in the last 10 years after accounting for dividend reinvestments.

If we assume that the index would return 10% every year going forward, you need to invest $1,010 per month for the next six and a half years to end 2030 with $100,000 in savings.

Younger investors can allocate the majority of their savings towards equity-linked products as they have a longer investment horizon.

The Foolish takeaway

It’s evident that you need to save an appropriate amount each month. Moreover, your monthly savings should be invested across inflation-beating asset classes. Each individual’s risk tolerance is different, which might significantly impact the portfolio allocation. However, it is important to stay invested for long periods of time to benefit from the magic of compounding.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Stock Market

stock analysis
Stock Market

Canadian Investors: Yes, You Should Buy U.S. Stocks

Canadian investors should consider increasing exposure to the U.S. markets due to the opportunity to benefit from higher returns.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, July 19

Sharp overnight declines in gold and silver prices could pressure the resource-heavy main TSX index at the open today.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, July 18

Despite yesterday’s negative reversal, the TSX Composite benchmark still trades with solid 4.5% month-to-date gains.

Read more »

Stock Market

Here Are My Top 3 TSX Stocks to Buy Right Now

Looking for some businesses that could have upside from here today? Check out these three top TSX stocks.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Wednesday, July 17

Trading just below the key psychological level of 23,000, the TSX Composite has been posting fresh record highs for four…

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, July 16

The TSX Composite Index has notched new record highs for three consecutive sessions, showcasing its upward momentum.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Monday, July 15

The TSX Composite benchmark just posted its best weekly performance in over eight months, taking it to a fresh all-time…

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, July 12

Strengthening commodity prices and growing rate cut hopes in the United States are helping the TSX Composite benchmark touch new…

Read more »