Saving for retirement is one of the most important goals you'll have in life. Yet it's so distant that it sneaks up on people, sending them into a stressful, late-career panic to make up years of lost ground.
According to research by The Motley Fool, the average retirement savings for American households is just $87,000. That's barely higher than the average American household's annual income -- and it's probably not nearly enough to fund basic living expenses for the rest of your life.
But there is always time to take action to improve your financial future, and investing is an excellent tool for building a nest egg to survive and enjoy your later years. Stick these three stocks in a diversified portfolio and you'll likely retire above the average.
1. Nvidia
You'll need some growth to boost your nest egg, especially if you're catching up. But you can't risk your precious money in speculative penny stocks or other risky ventures that are just as likely to evaporate. Nvidia (NVDA 6.18%) could be the answer you're looking for. The company has been one of Wall Street's hottest names this year due to the explosion of artificial intelligence and the resulting need for AI computer chips, which Nvidia dominates with a roughly 80% market share.
Yes, the stock is already up over 200% this year, but hear me out. Artificial intelligence isn't all hat and no cattle. Corporations are pumping massive investments into developing their AI technology, which runs on powerful chips. According to Statista, the global AI opportunity could grow 20-fold by 2030 to $2 trillion. And is growth going to just stop after that? Probably not. Nvidia will likely grow far larger than its current size, making it an excellent stock if you look 10, 20, or even 30 years ahead.
The stock's valuation isn't even that expensive despite its hot 2023. Analysts believe the company's earnings will compound at a 39% growth rate over the long term. Today Nvidia's forward P/E ratio is just under 38. The resulting PEG ratio of just one signal that Nvidia is cheap for the growth you could get in the future. Nvidia could fail to meet expectations, but the company's tremendous momentum in recent operating results implies that the future is bright.
2. Invesco QQQ Trust, Series 1
Picking individual stocks isn't necessary for successful investing. Exchange-traded funds like the Invesco QQQ Trust (QQQ 1.54%) can be great tools to easily build diversity into your investment strategy. Large technology companies have dominated Wall Street for years, and that's where the Invesco QQQ focuses.
Its top holdings include Apple, Microsoft, Amazon, Meta Platforms, Nvidia, Alphabet, and Tesla. These companies combine to make up roughly 44% of the total fund. Instead of trying to trade in and out of these big names based on their valuations, you can buy QQQ and let a professional worry about that. Broad exposure to big tech through QQQ has beaten the market for nearly a quarter-century.
QQQ Total Return Price data by YCharts
That doesn't guarantee the same results moving forward, but it's hard to see the fund falling on its face as long as big tech stays relevant. Just remember that ETFs like the Invesco QQQ charge fund managers fees, which is called the expense ratio. The QQQ's expense ratio is 0.2%, or $2 for every $1,000 you invest.
3. Vanguard S&P 500 ETF
The most straightforward investment strategy is to hitch your wagon to the broad stock market and ride it higher. The S&P 500 is an index constructed of 500 of America's largest companies, and is traditionally considered the go-to benchmark for stock market performance. There are ETFs like the Vanguard S&P 500 ETF (VOO 1.00%) built to mimic the S&P 500.
Technically, investing in stocks is riskier than simply sitting on your money, but you have to risk money to make money. Inflation will slowly eat away at your savings if you don't invest. Notably, the stock market is safer over the long term than most would think.
For example, the S&P 500 fell nearly 20% in 2022. This year, it's up almost 20%. It's a zig-zag that can drive anyone mad if you obsess over its volatility. However, zoom out and the chart looks much different. You can see that the stock market has historically gone higher over time because America's economy has steadily grown over decades. Steadily buy Vanguard S&P 500 ETF, and there's a good chance your money will eventually grow. The market averages about 10% annual returns over the long term.
