While becoming a millionaire through your investments may seem impossible (or at least overwhelming), investing $300 monthly can quickly lead you toward this goal.
Consider that if an investor has 45 years until they retire, they only need to earn a 7% annual return to become a millionaire. Meanwhile, investors 35 and 25 years away would need yearly growth rates of roughly 10% and 16%, respectively, to reach $1 million by retirement.
With these necessary annual returns in mind for each retirement time horizon, here's why CrowdStrike (CRWD 2.20%), Kinsale Capital (KNSL 2.48%), and Waste Management (WM 0.35%) look like excellent $300 dollar-cost-averaging purchases for investors.
1. CrowdStrike: 16% annualized returns needed for $1 million in 25 years
While investing heavily in hyper-growth stocks can be a high-risk proposition, cybersecurity enterprise CrowdStrike may be the rare exception to this rule due to the necessity of its offerings.
In a survey by consulting firm Gartner, cyber and information security was the highest priority for spending by chief investment officers in 2022. Filling this need, CrowdStrike's cloud-based and artificial intelligence-powered (AI) platform helped generate sales growth of over 700% since the start of 2019.
This fast growth -- capped by a 53% revenue increase in the third quarter -- has given the company an 18% share of the endpoint security industry, making it the market leader. Further highlighting CrowdStrike's leadership position in cybersecurity is that despite only being founded 12 years ago, the company already counts over half of the Fortune 500 companies as customers.
So with this large customer base already built, how exactly can CrowdStrike potentially return 16% annually for 25 years?
The answer to this question lies in the company's ability to create new security modules for its customers, helping to grow its dollar-based net retention (DBNR) rate. DBNR rate is a metric that compares how much CrowdStrike's existing customer base increases spending from one year to the next, including clients lost to churn.
Over the last five years, CrowdStrike averaged well above 120% on its DBNR rate, highlighting the continued adoption of its new modules in adjacent cybersecurity niches. Leading this charge, total customers using five or more modules grew to 60% in Q3 2023, compared to 39% in the prior year's quarter.
Now home to 23 unique modules and operating in an industry projected to grow by 13% annually through 2029, CrowdStrike looks poised to grow more critical to businesses of all sizes over time. Furthermore, its protection capabilities and network effects grow stronger with each new customer it adds, making it an excellent pick for investors looking to reach the $1 million threshold -- even over a shorter time horizon.
2. Kinsale Capital: 10% annualized returns needed for $1 million in 35 years
Since it's up more than nine times in value since its 2016 initial public offering (IPO), an argument could be made that property and casualty insurer Kinsale Capital should be our pick for finding 16% annualized returns.
Focusing exclusively on the property and casualty market's excess and surplus (E&S) niche, Kinsale covers hard-to-place risks for smaller-sized customers. This focus allows Kinsale to operate behind a hidden moat, specializing in a complex area that its diversified peers are not as well equipped to profit from due to their size.
As the only insurer to generate 100% of its premiums in this niche, the company's industry-leading combined ratio of 78% demonstrates the power of specializing in this tricky insurance segment. A company's combined ratio equals its expense and loss ratios, meaning a figure under 100% shows underwriting profitability.
This makes Kinsale's mark incredible, especially since it's not a one-off event. It's averaged a combined ratio of around 83% since its IPO.
Best yet for investors, this outsized profitability comes with spectacular revenue growth.
KNSL Revenue (Quarterly YoY Growth) data by YCharts
Despite this incredible sales growth, Kinsale only accounts for 1.3% of the $83 billion E&S market, leaving an astonishing growth runway ahead.
As Kinsale continues chiseling out its share of this massive market, it could be a safe bet for 10% annualized returns over the long haul.
3. Waste Management: 7% annualized returns needed for $1 million in 45 years
While technological advances continue at incredible rates, garbage, landfills, recycling, and renewable natural gas won't disappear anytime soon. That is where the United States' largest waste disposal company, Waste Management, steps into our 45-year outlook.
With over 15,500 collection routes and 260 active landfills, the company accounts for roughly one-fourth of the U.S.'s total waste and recycling market. While Waste Management's 7% annual sales growth over the last five years won't lead to it being a quick multibagger, its track record of adding tuck-in acquisitions over time makes it a steady compounder.
Since our north star is 7% annualized returns -- and we are investing in an industry that will persist for 45 years -- Waste Management's operations are a perfect fit for a younger investor leaning toward a safe stock.
Better yet, the company is still in the early innings of its foray into converting its landfill gases (LNG) into renewable natural gas (RNG) through its RNG plants. This RNG can then fuel Waste Management's trucks, generating renewable identification numbers (RINs) to sell for further profit.
This closed loop lays the foundation of a thesis that makes Waste Management an outstanding stock to add $300 to every month. With the benefit of time on your side, the most challenging part of becoming a millionaire from owning Waste Management may simply be not interrupting the power of compounding returns for 45 years or more.
