You have $100,000 and wish to accumulate it to $1 million before retirement… Undoubtedly, this is a lofty goal, but whether it will become a harsh reality depends on whether you have a concrete plan of action.
If you are familiar with the method of wealth accumulation, that is, “making money work for you,” even if your funds are less than $100,000, you can still reach your financial goals. An article on The Motley Fool website recently introduced several methods for reference. Let’s explore how these methods can help you achieve your goals.
The simplest method is to invest the $100,000 in a low-cost exchange-traded fund (ETF) all at once and rely on the “miraculous power” of time and compound interest to grow your wealth.
Historical data shows that the average annual return of the S&P 500 is around 10% (excluding inflation). Below are the time frames needed to accumulate $1 million under different growth rate conditions:
The advantage of this method is that it requires minimal intervention; however, the downside is that it requires years of accumulation. Therefore, it is crucial to start early to allow compound interest to work its magic.
If the time until retirement is not long enough or the funds are insufficient to rely solely on a lump-sum investment, achieving the million-dollar retirement goal may not be feasible. In such cases, monthly saving and investing can be a solution. The table below shows the monthly investment amounts needed to reach the million-dollar goal starting from zero, based on different remaining years until retirement and growth rate conditions:
Clearly, under various time frame conditions, the monthly investment amount is lowest when the growth rate is 12%. However, due to stock market volatility, an 8% or 10% return rate is considered more prudent. Starting early and consistently investing is key to this method.
If your personality cannot tolerate the passive investment approach of “drip feeding” and you wish to be more involved and can withstand relatively higher risks, researching and finding high-return stocks or ETFs to invest in may provide not only higher returns but also a thrilling surfing-like experience.
The downside is that due to the stronger market volatility, you may experience windfall profits or losses. For those who cannot tolerate losses and prefer a relatively more stable investment approach, consider opting for dividend-paying stocks. They can provide stable dividend income and additional returns when stock prices rise. Market data from 1973 to 2023 shows that dividend-paying stocks outperform non-dividend-paying stocks.
In conclusion, regardless of your starting point, as long as you choose the right method and strategy and stick to it, the goal of accumulating a significant retirement fund is not merely a dream. Take action early!
(Note: This article is for general informational purposes only and does not constitute any recommendations. The publication does not provide investment, tax, legal, financial planning, real estate planning, or any other personal financial advice. For specific investment matters, consult your financial advisor. The publication does not bear any investment responsibility.)