10 Investing Strategies to Become a Millionaire Retiree

What does it take to retire a millionaire? Mathematically, that's easy to answer. If your savings are growing at 7% annually, you can reach $1 million by contributing $400 monthly for 40 years or $815 monthly for 30 years. You could also calculate thousands of other combinations of growth rates, monthly contributions, and timelines. Unfortunately, math is only part of the, ahem, equation.

You also need to know a few investing tricks to make your targeted growth achievable. Here are 10 investment strategies to turn that long stream of retirement contributions into a seven-figure balance over time.

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Buy and hold is a passive investment strategy that involves purchasing high-quality positions you intend to keep for decades. As long as those positions remain fundamentally sound, you hold onto them -- which ultimately means no panicked selling in market downturns. You'd trade when you want to improve the quality of your portfolio and when you're rebalancing, but not because the market is unstable or because some stock or sector is trending.

The goal is to use time to build your wealth in a low-risk way. Long term, the stock market averages annual growth of 7% after inflation. That 7% average includes years the market was up double digits and years it was down double digits. If you let enough time pass, those market extremes always give way to positive growth. That's the justification for buy-and-hold investing.

The alternative is timing the market, which is guesswork. For novice and even many expert investors, timing often results in underperforming the market.

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Diversification is a risk-management strategy. The more you spread your wealth across different securities or types of securities, the less you are affected by any single one of them.

An easy path to diversification is to invest your retirement savings in mutual funds instead of individual company stocks. Even better, invest in different types of mutual funds. For example, you might have shares in an S&P 500 index fund, which gives you exposure to large, U.S.-based companies. You could diversify that position by also investing smaller amounts in a small- or mid-cap fund, an international equities fund, and a fixed-income fund. Or, choose a target date fund, which acts as a one-stop shop by blending various asset types together in one retirement-friendly portfolio.

Index investors seek out market-level growth by purchasing index mutual funds or index exchange-traded funds (ETFs). These funds build portfolios that replicate the performance of a benchmark index.

When researching index funds, pay attention to the fund's expense ratio. This is the percentage of your investment that's used to cover the fund's operating expenses. A ratio close to zero is best, because the fund's expense ratio will account for most of the difference between the fund's performance and the performance of the underlying index.

There are thousands of indexes, ranging from very broad to very specific. Many index investors prefer broader market indexes, such as the S&P 500, S&P 400 MidCap, Russell 3000, and S&P U.S. Aggregate Bond Index.

Warren Buffett is a well-known practitioner of value investing. Value investors purchase stocks that appear to be undervalued by the market. The goal is to obtain that position at a low price before it eventually rises in value.

A particular stock might trade for less than it's worth because operations have been affected by something temporary, because the business model is not well understood by the investment community, or a variety of other reasons. You'd identify these undervalued stocks through research and analysis of financial ratios such as price-to-earnings ratio and price-to-book ratio.

If you don't have the time or skill to research individual companies yourself, you could instead invest in value funds, like iShares Core S&P US Value ETF or Vanguard Mega Cap Value Index.

ALSO READ: 5 Lessons From Investing Wizard Warren Buffett

Growth investors buy into companies that they expect to grow faster than the market. Often, these are small to midsize companies operating in sectors that are poised to expand rapidly. They typically have clear competitive advantages, strong leadership, and sufficient financial strength to manage through a period of extreme growth. The downside is that these growth-oriented companies may be untested through all economic cycles and may even appear to be overpriced based on financial metrics.

Two popular growth funds are Invesco QQQ Trust and Vanguard Growth Index Fund Admiral Shares. Both have net assets over $130 billion and average 10-year returns in excess of 16%.

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Dividend growth investors take positions in companies that regularly increase their dividends, ideally by more than the rate of inflation. Companies that can afford to raise their dividends routinely for decades usually have very strong cash flows, a proven business model, loyal customers, and disciplined leadership. They may not experience the share price appreciation you'd see in less mature companies, but they're reliable about paying the dividend through all market cycles.

As a retirement saver, you'd reinvest the dividends during your working years to increase your count of income-producing shares. Once you leave the workforce, you can use your dividend income to fund some of your retirement distributions. That means fewer liquidations in retirement, which protects your earnings power and long-term solvency.

Dollar-cost averaging is the practice of investing a set amount periodically versus a larger amount at one time -- say, $500 monthly instead of $6,000 once a year.

The strategy neutralizes timing mistakes and lowers your cost basis. An example of a timing mistake is buying a position the day before the share price dips. If you're making purchases regularly, those unlucky share price fluctuations should largely be offset by lucky ones. Plus, since you are investing a set dollar amount each month, you'll buy more shares when the price is lower and fewer shares when the price is higher. That puts downward pressure on your cost basis over time.

Perhaps the biggest advantage of dollar-cost averaging is that it can be automated. And making consistent, ongoing investments is the surest path to becoming a millionaire retiree.

Excessive fees can severely hamper your retirement savings efforts. You may be paying 401(k) plan fees, fund management fees, sales fees, and service fees. All these reduce your returns and slow the growth of your retirement savings. For example, if you save $400 monthly at a 7% annual return, annual fees of 1% over 40 years will cost you roughly $255,470. Raise that fee to 3% and you'll pay an additional $326,219.

You can't eliminate investing fees, but you can reduce them. If possible, pick mutual funds and ETFs with very low expense ratios, below 0.2%. If your 401(k) doesn't offer those choices, then you could look at contributing more to your IRA or health savings account (HSA) instead. You'd still want to max out your employer match, but you can funnel excess contributions into an account that has less expensive choices. That will help keep your 401(k) plan administration fees lower, too.

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Your retirement wealth grows faster in tax-advantaged accounts like a 401(k), traditional IRA, Roth IRA, and HSA because you don't pay taxes on the dividends, realized gains, and interest each year. To quantify that, say you are saving $400 monthly in a tax-advantaged account at a 7% average return. If your combined state and federal tax rate is 25%, you'll defer more than $200,000 in income taxes over 40 years.

If you don't have access to a 401(k) or HSA, max out your IRA contributions. Use that IRA to hold positions that normally generate ongoing taxable income, like dividend payers. You can then invest additional savings in a taxable account, where you'd hold investments that are more tax efficient. These include growth equities that you'll hold for decades and tax-efficient mutual funds.

You can pull all these strategies together by being intentional about your asset allocation, today and over time. Asset allocation is the composition of your portfolio across different asset types, such as stocks and fixed income.

The Rule of 110 can help you here. It's based on the idea that your retirement portfolio should be more aggressive when you're younger and gradually get more conservative as you age. To use the Rule of 110, subtract your age from 110. The difference is an appropriate percentage of stocks to hold given your age. At 35, for example, your portfolio composition would be 75% stocks and 25% fixed income. You could then break down these percentages into smaller buckets for growth stocks, value stocks, domestic stocks, international stocks, domestic fixed income, international fixed income, etc.

Going forward, you'd revisit your target percentages each year and adjust as needed.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

You really can reach millionaire retiree status with disciplined saving and investing over time. Favor positions you can buy and hold, as these allow you to capitalize on long-term market trends. That rule holds true whether you like value stocks, growth stocks, dividend stocks, or all three. Pay attention to fees and taxes, too -- minimize them where you can for an extra boost to your bottom line. And finally, plan and manage your asset allocation. That ensures you'll stay diversified but not overexposed to your riskier asset types.

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