“If you want to be a millionaire, start with a billion dollars and launch a new airline.” — Richard Branson
Entrepreneur Richard Branson’s comment is very amusing, but it’s not helpful advice for most of us. So, here instead is useful advice that can actually help you attain millionaire status, starting with just $100,000. You may be surprised just how attainable it is.
1. Do very little more
If you’ve already got $100,000 in retirement savings and want to reach a balance of a million dollars (or more), you may need to do very little more. After all, that $100,000 is a fairly hefty sum. Knowing the stock market’s average annual return over many decades is roughly 10%, let’s be a bit more conservative in our assumptions and expect 8% annual growth.
The table below shows how you can reach a million dollars in 30 years if you invest $100,000 and it grows at 8% annually.
2. Save and invest more
Of course, many of us will be well into retirement in 30 years, so it makes sense to aim to amass that million dollars faster. To do that, you should be saving and investing regularly until you retire. Below is a table showing how much you might amass over time if you start with $100,000.
See? You can get to that million dollars much faster — in 20 years instead of 30 — if you can save and invest $1,000 a month and it grows at an annual average rate of 8%. Of course, if you can sock away more than that, you’ll become a millionaire even faster.
You can aim for a market-meeting return by investing in one or more broad-market, low-fee index funds. Here are some to consider:
- iShares Core S&P 500 ETF (IVV)
- SPDR S&P 500 ETF (SPY)
- Vanguard Total Stock Market ETF (VTI)
- Vanguard Total World Stock ETF (VT)
3. Consider growth stocks
You might try another approach, too, to speed things up: investing in growth stocks. A growth stock is tied to a company that’s growing at a faster-than-average rate. Many growth stocks will deliver phenomenal returns, but plenty will disappoint. That’s why it’s smart to spread your dollars across a bunch of them. Our Foolish investing philosophy suggests buying around 25 or more stocks and aiming to hang on to your shares for at least five years.
Note that you can both invest in growth stocks and play it safer with index funds. And there’s nothing wrong with just sticking with index funds. It means you won’t have to learn much more about investing nor study companies, deciding when, or if, to buy and/or sell.
Falling short of a million dollars
The stock market offers no guarantees, so it’s important to understand that you might not see 10% or even 8% average annual gains over the particular period in which you’re invested. So, go ahead and hope for the best, but prepare for the worst, investing as much as you can — especially sooner rather than later — because your earliest invested dollars have the longest time to grow.
If you end up with less than a million dollars by the time you want to retire, despite having a solid retirement plan, it’s not necessarily a disaster. You might consider delaying retiring for a few years, which can strengthen your financial condition considerably. (For one thing, it can help you delay claiming Social Security, which can make your checks bigger.) Or work part-time in your early retirement years — that alone can let your nest egg grow for more years.
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Source: The Motley Fool