Invest Wisely: Five Strategies to Reach Your $1 Million Retirement Goal
Setting a target of $1 million for retirement is admirable, though it’s essential to consider if that’s sufficient. Whether you’re starting with $100,000 or beginning from zero, there are effective investment strategies that can help you grow your wealth.
Below, explore five smart investment approaches to help you achieve your retirement ambitions. Identify which methods resonate with you and take proactive steps toward implementing them.
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Image source: Getty Images.
1. Invest in the Stock Market
Historically, the stock market is one of the best avenues for building wealth over time. In a study by Wharton Business School professor Jeremy Siegel, the average returns from various asset classes from 1802 to 2021 are as follows:
|
Asset Class |
Annualized Nominal Return, 1802 to 2021 |
|---|---|
|
Stocks |
8.4% |
|
Bonds |
5% |
|
Bills |
4% |
|
Gold |
2.1% |
|
U.S. dollar |
1.4% |
Data source: Stocks for the Long Run, Jeremy Siegel.
Over shorter periods, such as from 1946 to 2021, stocks yielded an average return of 11.3%, significantly outperforming long-term government bonds at 5.8%. This trend suggests that, for most investment horizons, stocks tend to outperform bonds.
Your returns may vary, so consider the following growth projections at an annual rate of 8%:
|
Growing at 8% for |
$7,500 invested annually |
$15,000 invested annually |
|---|---|---|
|
5 years |
$47,519 |
$95,039 |
|
10 years |
$117,341 |
$234,682 |
|
15 years |
$219,932 |
$439,864 |
|
20 years |
$370,672 |
$741,344 |
|
25 years |
$592,158 |
$1,184,316 |
|
30 years |
$917,594 |
$1,835,188 |
|
35 years |
$1,395,766 |
$2,791,532 |
|
40 years |
$2,098,358 |
$4,196,716 |
Calculations by author.
Instead of trying to predict the next big winner, consider investing in broad-market index funds to capture overall market performance. This approach aligns with the principles of Vanguard Group founder John Bogle and is endorsed by investors like Warren Buffett. Some respected exchange-traded funds (ETFs) to consider include:
2. Embrace Dividend Stocks
Adding dividend-paying stocks to your investment strategy can provide regular income alongside potential stock price gains. Companies that consistently grow their dividends can significantly enhance your returns. Below are average annual returns based on their dividend status from 1973 to 2023, adapted from a Hartford Funds report:
|
Dividend-Paying Status |
Average Annual Total Return, 1973-2023 |
|---|---|
|
Dividend growers and initiators |
10.19% |
|
Dividend payers |
9.17% |
|
No change in dividend policy |
6.74% |
|
Dividend non-payers |
4.27% |
|
Dividend shrinkers and eliminators |
(0.63%) |
|
Equal-weighted S&P 500 index |
7.72% |
Data source: Ned Davis Research and Hartford Funds.
You don’t need to sift through individual stocks to find the best dividends. Instead, set your sights on reliable ETFs that offer a selection of strong dividend stocks.
3. Reinvest Your Dividends
A powerful way to boost your investments is to reinvest your dividends. While retirees may need dividends for living expenses, those still in their working years can benefit from letting dividends accumulate and invest them in additional shares. Many brokerage firms offer an automatic reinvestment option for dividends, making this process straightforward.
4. Add Growth Stocks for Higher Returns
If you’re looking for above-average returns, consider allocating a portion of your funds to growth stocks. These stocks belong to companies experiencing rapid growth, such as Nvidia, MercadoLibre, Amazon, The Trade Desk, Intuitive Surgical, and Salesforce. However, recognize that growth stocks can be volatile, making it important to diversify your investments. The Motley Fool suggests investing in about 25 companies and holding them for at least five years.
To simplify this process, consider investing in ETFs that focus on high-growth companies.
5. Commitment to Your Investment Plan
Ultimately, the most critical strategy is to remain patient and disciplined. Continue investing consistently over the years, regardless of market fluctuations. Avoid getting discouraged during downturns. If you need a boost in motivation, reading investment literature can provide valuable insights into long-term wealth accumulation.
Regardless of your approach, ensure you have a robust retirement plan that you actively pursue.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Selena Maranjian has positions in Amazon, Intuitive Surgical, MercadoLibre, Nvidia, Salesforce, Schwab U.S. Dividend Equity ETF, The Trade Desk, Vanguard Index Funds – Vanguard Growth ETF, and iShares Trust – iShares Semiconductor ETF. The Motley Fool has positions in and recommends Amazon, Intuitive Surgical, MercadoLibre, Nvidia, Salesforce, The Trade Desk, Vanguard Dividend Appreciation ETF, Vanguard Index Funds – Vanguard Growth ETF, Vanguard S&P 500 ETF, Vanguard Total Stock Market ETF, and iShares Trust – iShares Semiconductor ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
