Saving your first $100,000 is a huge victory. Finding extra money to invest when expenses keep rising is a challenge, particularly when you're early in your career. But $100,000 won't make for a very comfortable retirement. So your ultimate goal may be to grow that money into $1 million or more.
If you start investing early enough, you can easily turn $100,000 into a seven-figure nest egg. Here's how to turn $100,000 into a $1 million retirement portfolio.
1. Invest in the S&P 500
Investing in the S&P 500 index is hands down the easiest way to turn $100,000 into $1 million. The S&P 500 index is widely considered a benchmark for U.S. stocks, representing about 80% of the U.S. stock market. The 500 companies represented in the index are some of the largest, most successful companies in America.
Over long stretches of time, an investment in the S&P 500 has always made money. Had you invested $100,000 in the index 30 years ago, you'd have over $1.5 million today, assuming you kept your money invested.
You don't directly invest in the S&P 500 index. Instead, you'd invest in an S&P 500 index fund, which simply attempts to replicate the index's performance as closely as possible.
Fortunately, there are plenty of dirt cheap options. Take the Vanguard S&P 500 ETF and the iShares Core S&P 500 ETF, which each have expense ratios of just 0.03%. That means that on your $100,000 investment, only $30 goes toward fees, while the other $99,970 gets invested.
2. Buy a growth ETF
To realistically turn $100,000 into $1 million, you'll need to start investing at least a couple of decades ahead of retirement. Since you have a long time horizon, you may want to focus specifically on high-growth stocks by investing in a growth ETF, or exchange-traded fund, which is a collection of stocks screened specifically for their high-growth potential.
For example, the Invesco QQQ invests in the Nasdaq-100, an index of the 100 largest non-financial companies on the Nasdaq Composite index. The Nasdaq is heavily concentrated in the typically fast-growing tech sector, which has gone through a substantial pullback over the last year. But if you have a high risk tolerance, buying the fund while it's down about 10% year to date could be an opportunity.
3. Become a real estate investor
Real estate can be a great source of passive income in retirement. The housing market has been on fire over the past two years, with home prices increasing 19.1% year over year between January 2021 and January 2022, according to CoreLogic. States like Arizona, Florida, and Utah all had year-over-year gains above 25%. Of course, it's highly unlikely that such rapid appreciation can continue forever.
But you could put $100,000 toward a down payment on a home. Depending on your local market and just how long you're willing to hold the property, you could see your investment appreciate to $1 million or more.
Keep in mind, though, that real estate is an illiquid investment. If you need to cash out quickly, you could sacrifice a huge portion of your gains or even lose money. Even in good times, selling can require significant time and red tape. That's why no matter how valuable your real estate holdings are, it's important to have other investments, like stocks and ETFs, in addition to cash.
Your biggest asset: Time
Don't expect to turn $100,000 into $1 million quickly. Trying to get rich in a short timeframe leaves you vulnerable to losing money. Earning huge returns in the short run requires you to take huge risks.
But the important thing is to start investing as soon as possible. You certainly don't need $100,000 to get started. Many brokerage firms allow you to open an account with no minimum upfront investment. If your employer offers a retirement plan, like a 401(k), you could start by allocating just a small percentage of your paycheck -- ideally enough to get your company match.
If you invested $100,000 and simply left it alone, it would take about 25 years for your money to grow to $1 million in non-inflation-adjusted dollars, assuming average annual returns of 10%. But if you waited just five years, it would cost you significantly. You'd only have a little more than $610,000 at the end of 20 years.
Investing makes it possible to turn $100,000 into $1 million. But doing so requires plenty of time and patience so you can capitalize on the power of compounding.