There are many reasons investors get into the stock market, but one of the most important is to save for retirement. There are few ways to match the returns a long-term investor can get from investing early and watching your savings grow.
The jump from $100,000 to $1 million looks huge. But you can definitely get there. Here are four ways to do it.
1. Give it time
Turning $100,000 into $1 million means letting it grow 10X, or 900%. When you think about top stocks, many have increased many more times than that. The key is to give it time.
If you only invested in an index fund that tracks the broader market, such as the SPDR S&P 500 ETF (SPY -0.05%), and let compounding do its magic, you're likely to see at least a 900% gain if you leave your funds in long enough. If you'd started with $100,000 27 years ago and added no extra funds, you'd have almost $1.2 million today.
SPY Total Return Level data by YCharts
By the way, that includes stock market crashes in 1997, 2008, and 2020. Giving yourself enough time to grow your savings takes away a lot of the risk associated with downturns.
2. Make monthly additions
On top of that, adding new funds to your retirement account monthly or at regular intervals helps you save even more. You can reach your retirement savings goals much faster, or you can end up with much more money.
For example, let's say you start with $100,000 and add $200 a month. You'll become a millionaire much faster -- using the annualized rate of return for the SPDR ETF over the past 10 years, which is about 14%, you'd make it to millionaire status in 17 years.
Data source: Investor.gov.
Keep in mind, though, that between the ups and downs, the annualized rate of return can change. The rate over 20 years, which encompasses the 2008 crash, goes down to 7%.
3. Balance security with high growth
To make up for potentially low return rates, which will make your money take longer to grow, you can add carefully selected high-growth stocks to pump up your portfolio. These give your savings some extra energy.
I don't recommend only investing in high-growth stocks because they're also high risk. You only need to take a look at the market today to see that. I might have a harder time convincing anyone to invest in growth stocks when they've been plummeting for months.
However, long-term investors need to keep in mind that bear markets have historically been fewer and shorter than bull markets. Growth stocks don't look very appealing today, but the right ones can supercharge your savings over the long term.
Bear markets are the ideal time to identify and buy shares in great companies that have the potential to explode down the line. For example, companies like Amazon and PayPal have delivered high gains for shareholders over time. Adding them to a balanced portfolio can help you achieve your retirement goals more quickly.
4. Reinvest your dividends
Finally, dividend stocks are an excellent way to earn income when you're retired, but they can also bolster your portfolio on the way. Reinvesting your dividends back into the stock gives you more shares, which increases your overall gains on the way to millionaire status. It also increases the amount of dividends you'll get if you take them as income when you retire. Consider this chart, where you can see Coca-Cola (KO 1.50%) stock's gain over 10 years, with and without the dividends.
KO 10 Year Price Returns (Daily) data by YCharts
Coca-Cola is well known for being a top dividend stock, and dividends have nearly doubled its total gain over the past 10 years.
Using all of these strategies can help you achieve your retirement goals, whether you start with $100,000 or less, but having that sum to invest is an excellent starting point on the road to becoming a millionaire. Keep in mind that we appear to be close to a bear market, and investors may be worried about investing large sums when prices are falling. Having a long-term strategy can help ease some of those fears.
