2 Stocks That Could Transform $100,000 Into $1 Million

To become a millionaire, you need to harness the power of compounding by staying invested for a longer term in growth stocks like these.

Who doesn’t want to be a millionaire? Could stock market investing make you one? It can. But you also need to invest a significant amount and give your money time to grow. If you keep withdrawing the money, its power of compounding will be diluted. Compounding assumes that the returns you earn are reinvested to earn similar interest. If a security earns you 5% interest on $100 in the first year, you reinvest $105 next year and earn 5% interest on $105.

top TSX stocks to buy

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Understanding the stock market CAGR return

Stocks are volatile and returns may fluctuate. Thus, we measure returns using the compounded annual growth rate (CAGR), the average annual growth rate of a stock over multiple years.

If you want to transform $100,000 into $1 million, you need a portfolio of stocks that can give you a CAGR of 12%–39%, depending on how long you stay invested. The longer you stay invested, the lower the CAGR you need. For a 15-year investment horizon, you need a portfolio that can give a 17% CAGR.

CAGRInvestment Horizon
39%7 Years
26%10 Years
17%15 Years
15%17 Years
12%20 Years

When I say stay invested, it doesn’t mean you have to stick to the same stock even if you see a long-term downtrend coming for the stock. You can book profit whenever you believe the stock has reached its peak. The profits you cash out should be reinvested in the next good growth opportunity that could give you the desired CAGR.

For instance, you invested in Suncor Energy in 2021 to earn a 25% CAGR. After over three years, you don’t see any more significant upside. You can consider selling the stock and cashing out the profit to invest in other growth stocks.

Two growth stocks for a $1 million portfolio

The outcome of $1 million depends on how much you invest. You can use a CAGR calculator and plug in your invested amount, time, and CAGR to get an idea of expected returns. If you have a 10-year investment horizon, consider investing in the below two growth stocks for a 26% CAGR.

Constellation Software

Constellation Software (TSX: CSU) tops the list for stable and sustainable growth. It is a company that works on the fundamentals of compounding. Although categorized as a tech stock, it is a holding company that acquires vertical-specific software companies at a reasonable valuation. It does so by not entering into a bidding war. Constellation keeps adding new companies and lets them continue to work independently while providing any management or financial backing needed to grow.

These companies generate stable cash flows by providing professional management services. Constellation uses its share of the cash flow to acquire other companies that generate cash flows. Thusly, even if a few acquisitions don’t work out, their losses are offset by successful acquisitions. Moreover, it enjoys 2–3% organic growth.

In the last five years (October 2019–October 2024), Constellation’s stock price grew at a CAGR of 26.7% from $1,333 to $4,357. Don’t look at the price; it is high because the company never did a stock split. All the acquisitions it has made to date have been added to the stock price.

A $13,000 investment can buy you three stocks and grow your money at a 26% CAGR for the foreseeable future.

Descartes Systems

Descartes Systems (TSX: DSG) is a resilient growth stock that can give you a 20–30% CAGR in the long term. It provides supply chain management systems and logistics solutions. The more trade happens, the higher revenue it generates as companies from all verticals use such software for multiple trades. This diversified customer base adds to Descartes’s resilience as weakness in one vertical is offset by strength in another. For instance, North American liquified natural gas (LNG) exports to Europe drove demand for Descartes services in 2023, while the pandemic-induced e-commerce boom drove demand for Descartes’s e-commerce offerings in 2020–21.

These multiple boom cycles grew Descartes’s stock price at a 21% CAGR in the last five years. The company is acquiring more supply chain-related tech companies to enhance its offerings. You can buy this stock anytime and let your money compound.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software and Descartes Systems Group. The Motley Fool has a disclosure policy.

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