Retiring a millionaire doesn't have to be a pipe dream for investors. There aren't any secrets to how you can accomplish it, beyond just saving and then buying and holding quality investments for decades.
Here's how a $100,000 investment can grow to be worth more than $1 million over the course of 25 years. If you've got the savings and the patience, it could be an easy way to accumulate wealth over the long term.
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A 10% annual return can be enough to deliver 10x gains
Gaining 10% per year may not seem like a whole lot. But through compounding, those gains can add up over time. If your investment can average a 10% gain for five years in a row, you're up over 61%. Now, imagine that over a period of 25 years. By then, if your investment is still averaging 10% returns, it will have risen by more than 983%.
This chart illustrates just that, showing you how even 10% gains over time can accumulate and grow a $100,000 investment to more than $1 million.
Date source: Chart by author.
Early on, those 10% gains don't amount to much, but by year 18, your portfolio is growing by more than $50,000 each year. And that's when your portfolio starts to take off in value.
Besides saving the large lump sum of cash to invest, the other key component is in finding a safe stock to hold that can generate consistent returns for you.
Dividend stocks can help maximize your returns
A dividend stock can make the most sense when choosing a very long-term investment. Typically, it's more stable than a growth stock, since if it's paying a dividend, that normally means it's generating good cash flow. Plus, the business likely isn't spending a ton on growth initiatives that could divert cash away from a recurring dividend stream.
That isn't always the case, but a good example of how easy it is to find a stable dividend investment is UnitedHealth Group (UNH 2.15%). At 1.2%, its payout to shareholders is below the S&P 500 average of 1.3% but investors know that with UnitedHealth, they're getting a top dividend stock in the healthcare industry. The health benefits provider has steadily grown its profits over the years, alongside revenue, as seen in the chart.
Data by YCharts.
This is the type of stable, predictable growth that can make for a solid long-term investment. You won't get many surprises with UnitedHealth. And because the company also pays a dividend, you don't have to rely solely on the stock's capital appreciation for your gains. Together with the dividend income, if your total returns average 10%, that can be enough to get your $100,000 investment into $1 million (this assumes that you reinvest the dividend back into the stock).
Many dividend stocks could be suitable options
Over the past decade, UnitedHealth's total returns (including dividends) are up around 900%, which would be enough to turn a $10,000 investment into more than $100,000. That averages out to a compounded annual growth rate (CAGR) of nearly 26%. A stock that has averaged a 10% total return for 10 years would have grown your portfolio by a much more modest rate of 159%. (If you think that's high, consider the S&P 500's total returns are nearly 300% over the same time frame.)
There are several top healthcare stocks that would meet this criteria. Even the Health Care Select Sector SPDR ETF has generated higher returns than the S&P 500.
Data by YCharts.
The worst-performing stock on that chart, Johnson & Johnson, generated total returns of more than 230%, averaging a CAGR of 12.7%.
As you can see, there's no wizardry here; picking a solid long-term investment to hold can be as easy as looking for top stocks in a sector that pay dividends. And if you don't feel comfortable putting that much money into one or two stocks, investing into an ETF can suffice.
There's no secret investment or stock that will make you a millionaire. Simply working on building up some strong savings and then investing that money for the long haul into dividend stocks or an ETF can get your portfolio to $1 million. The most important steps will likely involve the discipline to accumulate that much in savings -- and the willingness to just leave it alone once you've invested it.
