As legendary investor Warren Buffett has said, "It is not necessary to do extraordinary things to get extraordinary results." Simply choosing solid investments in stocks, mutual funds, or ETFs and holding on to them in your retirement account is the most surefire way to grow your nest egg over time.
The billionaire has said that the best investment most people can make is in simple low-cost index funds, particularly those that track the S&P 500. And it's not hard to see why. Over long periods, the S&P 500 has delivered annualized returns of 9%-10%, depending on the exact timeframe you're looking at. During the 30-year period ending in 2022, the S&P achieved 9.65% annualized returns. To put this into perspective, this level of performance would result in 530% gains after 20 years and 1,486% gains after 30 years.
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So if you have a retirement account worth $100,000 today, simply investing it in a broad S&P 500 index fund could more than 6X your money without ever putting another dime into your account.
To be clear, you don't need to just use S&P 500 index funds. If you have the time and knowledge to research individual stocks or want to branch out into other types of ETFs or mutual funds, go for it. But the point is that by simply buying and holding solid investments, you might be surprised at the potential.
Keep saving and investing no matter what
The second piece of the puzzle is to steadily contribute to your retirement account and grow your portfolio regardless of what the stock market is doing.
Consider this example. Let's say you have $100,000 in a retirement account and that your investments will match the long-term performance of the S&P 500 over time. If you simply contribute $8,000 in new money to your account each year and leave your money invested for the long-term, your account would be worth nearly $1 million in 20 years. That's a 10X from its original value with no complex investment strategies at all.
Easier said than done
To be sure, these are two relatively simple concepts to implement, but doing them consistently for several decades is not quite so simple. After all, if building a multimillion-dollar retirement nest egg was easy, everyone would do it.
For one thing, the average investor doesn't match the stock market's performance over time, primarily because they overtrade. When the market gets turbulent, it's human nature to want to pull our money out of stocks and wait it out on the sidelines. And when the market is rising, it's our instinct to put as much money into stocks as possible. Timing the market is generally a losing battle, and the statistics back it up. Over the past 30 years, the S&P 500 has produced annualized returns of 9.65%, while the average equity fund investor has managed just 6.81%.
A similar concept is true when it comes to consistently contributing, as many investors put their retirement contributions on hold or contribute at a reduced amount during tough times. To be fair, it isn't always the investor's fault -- for example, if you're unemployed for several months, it makes sense that your 401(k) won't see any new money. But the point is that a plan of contributing consistently for 20 years or more often encounters some bumps in the road.
The bottom line is that if you want to 10X your retirement savings (or more) in the next 20 years, it's important to develop some habits that most investors don't have. Specifically, leave your investments alone for the long haul and contribute to your retirement accounts in good market environments and bad. If you do these two things, there's no guarantee your retirement savings will 10X, but you'll be in a great position to make it happen.
