3 Ways to Grow $100,000 Into $1 Million for Retirement Savings | The Motley Fool (2024)

You might be a lot closer to $1 million than you think.

Having $1 million in retirement savings might sound like a far-off dream, but the truth is the first $100,000 is the hardest.

Hustling to build a $100,000 investment account is a huge milestone. Famed investor Charlie Munger once told a young attendee at a Berkshire Hathaway shareholder meeting in the 1990s that once you have $100,000 you can "ease off the gas a little bit." That is to say, once you have this amount, compounding can take care of a lot of the work for you.

That doesn't mean you don't have to keep putting in effort and work to grow your nest egg. It just means it'll come a lot faster than you might expect. Here are three ways to grow $100,000 into $1 million for retirement.

1. The simplest path from $100,000 to $1 million

Investing doesn't have to be complicated. You don't have to be some trading wonk who dives into annual reports and stock charts. If that stuff doesn't interest you a whole lot, it'll be hard to outperform investors who read SEC filings just for fun.

The simplest way to invest your money is by using a simple broad-market index fund. An index fund that tracks the or a total stock market index typically has low fees, and it's going to closely match what the overall stock market returns.

A few examples of great index funds are:

  • Vanguard Total Stock Market ETF (VTI -0.34%)
  • SPDR S&P 500 ETF (SPY -0.29%)
  • iShares Core S&P 500 ETF (IVV -0.28%)

All of the above have expense ratios of less than 0.1% and do a great job of tracking the index they benchmark. Those two things will ensure you get similar results to the overall market.

And if you think this is a cop-out, consider this. Over the last 15 years, . Those are the professionals who get paid handsomely to outperform the market. And they can't consistently produce results year after year good enough to justify the fees they charge. So, sticking with an index fund is a good bet for most.

If you put $100,000 to work in an S&P 500 index fund, and it returns its average 6.5% real compound annual return, it'll take less than 37 years for you to reach $1 million in today's dollars.

2. Small-cap stocks

Small-cap stocks outperform large-cap stocks in the long run, so adding more small-cap investments to your portfolio can help boost returns.

Over the last 30 years, the small-cap focused S&P 600 has produced a compound annual return 33 basis points higher than the S&P 500. And it can outperform much more in the early days of a bull market.

You might not know it based on the recent performance of megacaps like the "Magnificent Seven," but the reason small-caps have the potential to outperform is because it's a lot easier for a $300 million company to grow to a $3 billion company than it is for a $300 billion company to grow into a $3 trillion company. Not every company can be Apple or Microsoft.

But when you invest in what sounds like a well-diversified index fund like the Vanguard Total Stock Market ETF, you're mostly buying large-cap stocks. That's because the fund is market-cap-weighted. Nearly 16% of the entire fund is invested in Apple, Microsoft, and Alphabet, Google's parent company. The top 10 holdings account for over 28%.

Small-cap stocks are generally riskier than large-cap stocks. What makes them outperform in the long run (their small size) also makes them more volatile. Luckily, adding small-cap stocks can be done with an index fund, which can mitigate the risk of investing in individual companies. Additionally, focusing on profitable small-caps, like those found in the S&P 600,has been shown to improve returns.

A couple of small-cap index funds to consider:

  • Vanguard Small-Cap ETF (VB -0.67%)
  • SPDR S&P 600 Small-Cap ETF (SPSM -0.63%)

Even boosting your portfolio returns by a few basis points can cut years off your journey from $100,000 to $1 million. Small-cap stocks are one way to do that.

3. Dividend growth stocks

Another class of stocks that's historically outperformed the overall market is dividend growth stocks. In the 50 years from 1973 through 2022, companies initiating and growing a dividend produced a compound annual total return of 10.24% versus just 6.6% for those that never changed their dividend policy.

A dividend growth stock is consistently profitable and grows those profits enough over time that it can raise its dividend paid to shareholders most years. And if you reinvest those dividends every year, you can end up with a substantial income-producing portfolio over time.

Investing in dividend growth stocks can be a winning strategy even if you don't plan to live off those dividends in retirement. Again, if you don't want to pick individual stocks, you can add exposure to dividend growth stocks with an index fund. Some examples include:

  • Vanguard Dividend Appreciation ETF (VIG -0.13%)
  • WisdomTree U.S. Quality Dividend Growth Fund (DGRW -0.22%)

The nice thing about dividend growth stocks is that they make it easy to stay the course. Even if the stock price moves up and down, a steady dividend increase can assure you the underlying businesses are producing positive results for investors.

If you want to grow $100,000 to $1 million by the time you retire, you'll want to invest in a broad portfolio of stocks. And while you can get there by just putting $100,000 into an index fund and waiting, you'll get there a lot faster if you continue to add to your holdings every year.

If you've already done the hard part -- the first $100,000 -- the path to $1 million is pretty straightforward.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy has positions in Alphabet, Apple, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, Microsoft, Vanguard Index Funds-Vanguard Small-Cap ETF, Vanguard Index Funds-Vanguard Total Stock Market ETF, and Vanguard Specialized Funds-Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.

3 Ways to Grow $100,000 Into $1 Million for Retirement Savings | The Motley Fool (2024)

FAQs

3 Ways to Grow $100,000 Into $1 Million for Retirement Savings | The Motley Fool? ›

Mutual funds and exchange-traded funds (ETFs) are all good ways to create a diversified portfolio of investments. Mutual funds are effectively baskets of investments. They might be all stocks, all bonds, or a combination of both. Mutual funds have a manager – a person who is choosing what to include within the fund.

How would you diversify a $100000 investment? ›

Mutual funds and exchange-traded funds (ETFs) are all good ways to create a diversified portfolio of investments. Mutual funds are effectively baskets of investments. They might be all stocks, all bonds, or a combination of both. Mutual funds have a manager – a person who is choosing what to include within the fund.

How much do I need to save to get to 1 million? ›

Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.

How to make more money with $100,000? ›

6 approaches and strategies to invest $100,000
  1. Park your cash in an interest-bearing savings account.
  2. Max out contributions to retirement accounts.
  3. Invest in ETFs.
  4. Buy bonds.
  5. Consider alternative investments.
  6. Invest in real estate.
May 16, 2024

How much would I need to save monthly to have $1 million when I retire instructions? ›

Here's how much you need to save per month to retire with $1 million
  1. If you start at 20 years old, you need to save $116 per month.
  2. If you start at 30 years old, you need to save $307 per month.
  3. If you start at 40 years old, you need to save $847 per month.
Jan 6, 2023

How do I turn $100000 into $1 million? ›

There are two approaches you could take. The first is increasing the amount you invest monthly. Bumping up your monthly contributions to $200 would put you over the $1 million mark. The other option would be to try to exceed a 7% annual return with your investments.

Where is the safest place to invest $100 000? ›

Government bonds (aka "Treasurys") are generally considered the safest investments because they're backed by the full faith and credit of the U.S. government. Other types of bonds include corporate bonds and municipal bonds (earnings on the latter are exempt from federal taxes).

Can you live off the interest of $1 million dollars? ›

Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.

What percentage of retirees have $3 million dollars? ›

Specifically, those with over $1 million in retirement accounts are in the top 3% of retirees. The Employee Benefit Research Institute (EBRI) estimates that 3.2% of retirees have over $1 million, and a mere 0.1% have $5 million or more, based on data from the Federal Reserve Survey of Consumer Finances.

How does $160 month over 40 years become over $1 million? ›

Multiplying 480 (40 years) payments by $160 equals $76,800. So in this case, the impact of compounding has almost a 13X multiplier effect: $76,800 was contributed to create a final future value over $1,000,000.

What is the best investment right now? ›

11 best investments right now
  • High-yield savings accounts.
  • Certificates of deposit (CDs)
  • Bonds.
  • Money market funds.
  • Mutual funds.
  • Index Funds.
  • Exchange-traded funds.
  • Stocks.
6 days ago

What is the best mutual fund to invest in in 2024? ›

Top Performing SIP Mutual Funds In 2024
Fund NameFund Size (Crores)3-year Return (In Percentage)
Kotak Equity Opportunities FundRs.18,31524.92%
Edelweiss Large Cap FundRs.2,73424.49%
Canara Robeco Emerging Equities FundRs.19,90219.32%
Kotak Bluechip FundRs.7,44719.45%
6 more rows
15 hours ago

How much money do I need to invest to make $4000 a month? ›

Making $4,000 a month based on your investments alone is not a small feat. For example, if you have an investment or combination of investments with a 9.5% yield, you would have to invest $500,000 or more potentially. This is a high amount, but could almost guarantee you a $4,000 monthly dividend income.

How many Americans have $1,000,000 in retirement savings? ›

However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.

What is the average 401k balance for a 65 year old? ›

$232,710

What is a good monthly retirement income? ›

Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.

What to do with 100K inheritance? ›

What Do I Do With a Cash Inheritance?
  1. Give some of it away. No matter where you are in the Baby Steps, giving should always be part of your financial plan! ...
  2. Pay off debt. ...
  3. Build your emergency fund. ...
  4. Pay down your mortgage. ...
  5. Save for your kids' college fund. ...
  6. Enjoy some of it.
Feb 2, 2024

How much interest will 100K earn in a year? ›

At a 4.25% annual interest rate, your $100,000 deposit would earn a total of $4,250 in interest over the course of a year if interest compounds annually.

How should I diversify my investment? ›

Focus on holding just one or two funds in each category and think about how different investments will interact with each other. You'll get the most diversification benefit by holding uncorrelated assets, or assets that move in opposite directions of each other.

How to stretch 100K? ›

Consider these options to grow $100,000 for retirement:
  1. Invest in stocks and stock funds.
  2. Consider indexed annuities.
  3. Leverage T-bills, bonds and savings accounts.
  4. Take advantage of 401(k) and IRA catch-up provisions.
  5. Extend your retirement age.
Nov 20, 2023

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