Most of us would love to be wealthy — however we define that. Ideally, we’re saving and investing regularly for retirement because we realize that Social Security will not provide sufficient income in our retirement. But many of us are not on track to have saved as much as we expect to need, and many don’t expect to grow our portfolios to an impressive degree.
It’s possible, though, to achieve way more wealth than you imagined. Here’s a look at how, for an extreme example, you might turn $1,000 into $56 million. (Other, more realistic, scenarios will still likely thrill you.)
It all comes down to three factors: money, growth rates, and time
Figuring out how much you might be able to amass by retirement all boils down to some simple math — and three factors:
How much you can invest regularly
How many years your money can grow
How quickly your money will grow
Check out the table below, which shows how one investment of $1,000 (not $1,000 invested regularly) can grow over long periods at different growth rates:
Growing at 5%
Growing at 10%
Growing at 20%
You’ll see that you might turn that single $1,000 into more than $56 million — but only if you have 60 years in which to grow that money, and only if it grows by about 20% per year. So there’s a good chance this won’t work for you — though it can be quite effective to park a modest sum in an investment account for a child or grandchild when they’re very young, as it might grow to an impressive sum by the time they’re middle-aged or retiring. (Of course, if you invest more than that single $1,000, perhaps multiple thousands every year, you can get to multiple millions much faster.)
Averaging 20% growth per year is a bold goal. It may well be achieved, but in the stock market, returns are never guaranteed. For context, know that over long periods, the overall stock market has grown at an average annual rate of close to 10%.
Set realistic goals
For those out there who don’t have the time or interest to become expert stock-pickers, there’s an excellent way to invest long-term dollars: in an index fund. Index funds are mutual funds that track a particular index, like the S&P 500 index of 500 major American companies. They buy most or all of the same stocks in the index and deliver roughly the same returns (less fees). There are many very low-cost index funds, so aim to avoid any with high fees.
Over the 10 or 20 or 30 years in which you’re invested, you can hope for an average annual return of 10% or more, but you might achieve less. Each time period will have a different average. The table below shows how much you might amass if your money grows at a more conservative 8% annually:
Growing at 8% for:
$5,000 Invested Annually
$10,000 Invested Annually
$15,000 Invested Annually
If you want to try for those returns of 20% a year or more, you’ll want to take time to read up on investing and then perhaps to add a big bunch of growth stocks to your portfolio. The way that many people have had success with that strategy is by buying 25 or more carefully selected growth stocks and then holding on for at least five years. That’s because some will flame out, so you want to have a large enough assortment that you stand a good chance of having one or more amazing performers that can more than offset any losers. Learn more about The Motley Fool’s investing philosophy if you’d like to explore this strategy more.
If you’re young and you learn enough to become a very savvy investor, you might amass $56 million over 60 years. But even if you’re 55 or 60, you still have many years in which your money can grow for you — leading up to retirement and even in retirement. Don’t assume that you can’t improve your financial situation significantly with a little effort and patience.
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