Turning $100,000 into $1 million means you let your money grow 1,000%. That's a huge gain, but it's very doable if you give it enough time. Compounded over many years, the annualized growth rate doesn't have to be very high to get you to millionaire status by retirement. If you're starting late, it's also possible to grow your money quickly, but that would entail more risk.
You also don't have to start with $100,000. If you have a more modest initial investment but add funds to your accounts over time, you can become a millionaire. That's why there are several ways to make it happen, and one of them likely fits your timeline and investing style. Here are four options.
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1. Invest in an index fund
The tried-and-true index fund is definitely one of the most reliable tracks toward wealth. It's a slow process, but one that yields results. An index fund, such as the Vanguard S&P 500 (VOO -0.07%)exchange-traded fund (ETF), tracks the movements of a stock index, in this case, the S&P 500 index. The S&P 500 is a collection of industry-leading U.S. stocks, each of which has at least $11.8 billion in market cap, in addition to a few other requirements. That makes this index a capable representative of the broader market. From time to time, companies are traded out of the index and others take their place, so there are always 500 stocks in the composite at any given time.
The S&P 500 has gained an annualized rate of about 14% over the past 10 years. If you invested $100,000 10 years ago, without adding extra funds, today you would have $370,000. Keeping that rate constant, you would be a millionaire after 18 years.
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Consider that this scenario doesn't include any extra contributions. If you would add money to this investment over the years, you would become a millionaire faster and have a lot more at the end of the 18 years. Or if you have a smaller amount to begin with but add money over time, you can still become a millionaire over a similar period of time.
Eighteen years is also a relatively short time span. If you start earlier, you could become a millionaire with a much smaller amount of money for your initial investment or with a lower annualized growth rate.
2. Invest in high-growth stocks
If you don't have 18 years to get to millionaire status, you can grow your money more quickly through growth investing. Investing in growth stocks can supercharge your portfolio, because growth stocks can gain in value very quickly. The occasional growth stock can even gain 1,000% in one year. However, the catch is that they typically have a high degree of associated risk.
Growth stocks are usually young companies that are growing rapidly and have lots of potential, but they aren't always proven, and the trajectory doesn't always go as planned. If you choose to invest in growth stocks, you may want to balance them out with safer value stocks or choose a number of stocks to vary your holdings and up your chances of success. Sometimes, a stock that gains too quickly can also implode, so you don't want to tie up all of your retirement money in risky choices.
Let's use fintech stock Upstart Holdings (UPST 0.79%) as an example. The company started trading publicly last December, and by November, its stock had gained more than 750%. However, the hype came back to reality, and the stock is now up a still-impressive 263% over the past year. If you'd invested in Upstart, you would have beaten the market by a wide margin -- the S&P 500 is up 28% over the past year.
3. Invest in dividend stocks
Dividend stocks are typically attractive to the already retired, because they provide income. Dividends are payments per share that a company doles out to shareholders, usually quarterly. They are a fixed amount, but investors usually calculate the yield they get based on the price of the stock.
For example, one of the best-known dividend stocks is Coca-Cola (KO 1.50%). The company's most recent dividend was for $0.42 a share on Dec. 15, so if you owned 100 shares, you would have received $4.20. With a current price of $58, that works out to an annual yield of 2.9%.
Over time, and with enough money invested, dividends can provide a very nice income. They can be reinvested to buy you more shares without having to add any direct contributions, paving the way to a millionaire retirement.
4. Create a diversified portfolio
All of these methods work best when they are applied together to create a diversified portfolio of quality stocks. Investing part of your money in an index fund builds a safety valve into the portfolio and grows your money securely over time. Investing some into an array of growth stocks gives them a chance to grow faster with less risk, and putting some into dividend stocks gives your money the opportunity to grow while providing income or increasing your equity.
All together, these strategies maximize your chances of becoming a millionaire while keeping your investments secure -- $100,000 is an excellent starting point, and it puts you well on your path to your goals if you start today.
