You'll Become a Millionaire -- Here's When

Could you become a millionaire? Yes, probably. The trick is figuring out just how to get from where you are now to that point.

Several factors will influence how you'll get there:

  • How much you have invested already.
  • How much you can save and invest each year.
  • How long your money will have to grow.
  • What average annual return you expect to earn.

Let's see how these factors can work for you, supposing you're 40 years old with a $50,000 nest egg:

Amount Invested Per Year

Average Rate of Return

Years to $1 Million

Age at $1 Million

$3,000

8%

32

72

$5,000

8%

29

69

$10,000

8%

24

64

$3,000

10%

27

67

$5,000

10%

25

65

$10,000

10%

21

61

$3,000

12%

23

63

$5,000

12%

21

61

$10,000

12%

18

58

These reasonable inputs would let you achieve millionairehood within about 20 to 30 years, depending on how quickly your money grows, and how much you manage to save and invest.

You might already know that the stock market's longtime average return is about 10% per year. But remember, that's a very long-term average -- stocks could average 8%, 12%, or something else entirely during the 20, 30, or 40 years that you invest. And that's not the only complication the market could toss your way.

Before you start seeing dollar signs ...
As we've seen over the past year or two, even stocks considered the safest blue chips can have widely differing performances over short or long stretches of time. Check out how some familiar names have fared over the past two decades:

Company

20-Year Average Annual Return

Duke Energy (NYSE: DUK  )

9%

Johnson & Johnson (NYSE: JNJ  )

14%

American Express

9%

Disney (NYSE: DIS  )

6%

Schwab (Nasdaq: SCHW  )

23%

Motorola (NYSE: MOT  )

5%

CVS Caremark (NYSE: CVS  )

11%

Alcoa

4%

Eastman Kodak

(6%)

S&P 500

8%

Source: Yahoo! Finance.

Your best path to a million bucks
You can get to a million faster by saving and investing more, and by picking the right stocks to generate higher returns. And you'll stand a chance of compounding at higher rates if you invest in stocks with the healthiest growth rates.

Smaller companies are generally one good area to start looking for strong growers. After all, it's easier to double your revenue from $50 million to $100 million than from $50 billion to $100 billion. To an extent, the outsized returns in the table above reflect companies that were much younger and smaller 20 years ago.

Not only do small caps outperform their larger peers overall, but according to data compiled by my Foolish colleague Tim Hanson, all of the past decade's best performers were small, most with capitalizations less than $100 million. Check out the 10-year average returns of some strong performers over this past decade:

Company

10-Year Average Annual Return

Market Cap on Jan. 1, 1999

Green Mountain Coffee Roasters

55%

$19 million

Almost Family

41%

$9

Southwestern Energy (NYSE: SWN  )

45%

$187 million

XTO Energy

37%

$343 million

Data from Morningstar.com and Capital IQ, a division of Standard & Poor's.

Compare those puny market caps with those of today's blue chips -- Johnson & Johnson's, for example, tops $160 billion, while American Express' is around $40 billion. Which kinds of companies do you think stand the better chance of growing quickly?

It's critical to choose your stocks well, and to keep up with your holdings, making sure you're devoting money to your best ideas. It's also critical to start soon. The more time your money has to grow, the sooner you'll reach a million.

If you're looking for small companies with lots of room to grow, try our Motley Fool Hidden Gems newsletter absolutely free. Even in this crummy economy, its recommendations have been outperforming the market. You can access all our past issues and recommendations with a 30-day guest pass.

Already subscribe to Hidden Gems? Log in at the top of this page.

This article was originally published on June 15, 2009. It has been updated.

Longtime Fool contributor Selena Maranjian owns shares of American Express and Johnson & Johnson. GreenMountain Coffee Roasters is a Motley Fool Rule Breakers recommendation. Walt Disney and Charles Schwab are Motley Fool Stock Advisor selections. American Express and Walt Disney are Motley Fool Inside Value selections. Duke Energy and Johnson & Johnson are Motley Fool Income Investorrecommendations. The Fool owns shares of XTO Energy. The Motley Fool is Fools writing for Fools.


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  • Report this Comment On September 22, 2009, at 6:20 PM, deadlysaber wrote:

    When seeking financial services it is important to look for a full service bank that can offer the customer a wide range of choices for acquiring loans and saving money at competitive interest rates. On the east coast where banking institutions are highly concentrated into small geographic areas finding the right bank is a particularly difficult task as many banks offer different services and varying interest rates to investors. Seeking a bank in Massachusetts for example, may be different than seeking similar services in New York. Full service banks offer two or three levels of saving and checking accounts as well as investment and business banking services to cater to the community in addition to the individual.

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    Credit Unions usually offer some advantages over banks as they are membership based and rely on a group of people with similar work assignments or working industries to collectively pool their investment money from savings accounts to portfolios that are performing well enough to give a higher return back to its members. In going to the bank Massachusetts residents may find their interest rates on both the money they borrow and the money they save to be better with a credit union.

    -------------------------------

    Money without intelligence is like a car without a road.

    http://www.intelligentinvestingtips.com

  • Report this Comment On September 23, 2009, at 12:23 PM, plange01 wrote:

    all of a sudden with some mostly unjustified bad press moodys is looking like a strong buy.i am adding to my position.cant go wrong for long with buffett its biggest shareholder....

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