Aiming to grow your nest egg to $1 million or more by retirement can be an ideal goal. Whether you reach it or not, it can help you focus your efforts on ways to grow your portfolio’s balance over the years.
Whether that means investing every month or prioritizing investing in top growth stocks, the mentality alone can help ensure that you are in a stronger financial position when you retire than if you not have this goal in mind.
What annual return do you need to turn a $25,000 investment into $1 million?
If you want to invest $25,000 in the stock market today, here’s how much you can grow over the years at different annual growth rates. Historically S&P500 has achieved an average return of about 9.7%.
|
Growth rate |
Years |
||
|---|---|---|---|
|
20 |
25 |
30 |
|
|
10% |
168,187 USD |
$270,868 |
436,235 USD |
|
11% |
201,558 USD |
339,637 USD |
572,307 USD |
|
12% |
$241,157 |
425,002 USD |
$748,998 |
|
13% |
$288,077 |
530,764 USD |
$977,897 |
|
14% |
$343,587 |
661,548 USD |
$1,273,754 |
|
15% |
409,163 USD |
822,974 USD |
$1,655,294 |
Calculations by the author.
The chances of reaching $1 million are much better if you have 30 years to invest. Otherwise, you’ll need to aim for a much higher growth rate than 15%, and that can be very risky.
But the good news is that you can still increase your investments over time. The table above only assumes that you invest $25,000 today and make no additional investments. You can accelerate the growth of your portfolio by either investing more today or increasing your investments over the years.
ETFs can help you offset this risk
Invest in a top growth stock such as NVIDIA (NASDAQ: NVDA)could be a tempting option if your focus is on growth. After all, the whopping 24,000% increase in value over the past decade would have turned $25,000 into an incredible $6 million today. But it’s highly unlikely you’d get that kind of return if you bought the stock today.
Nvidia is already one of the most valuable companies in the world, recently reaching a market capitalization of around $2.9 trillion. The danger is that investors expect strong growth from the company and factor this into the valuation. If the company’s growth unexpectedly slows, there is a high risk that a significant sell-off could occur.
Even if you’re a growth investor, exchange-traded funds (ETFs) can be a much better option. Just because you’re investing in an ETF doesn’t mean you’re missing out on gains or much upside. There are growth-focused funds that can offer you promising long-term opportunities to grow your portfolio’s balance over time.
A particularly attractive option for growth and technology investors is the Invesco QQQ Trust (NASDAQ: QQQ)This fund gives you access to Nvidia and many other top stocks. It holds a portfolio of the 100 best non-financial stocks on the Nasdaq Stock exchange. In addition to Nvidia, you get access to stocks like Amazon, Meta-platformsAnd Tesla too. The fund has a modest expense ratio of 0.2%, meaning diversification won’t cost you too much.
In 10 years, the fund would have grown a $25,000 investment to nearly $130,000 today, including dividends. That’s far better than the return you would have gotten if you had invested in that alone. S&P500A similar investment in the broad index would currently be worth around $83,000.
A growth-oriented ETF should be part of every retirement plan
There is no guarantee that the stock market will produce the same returns in the future as it has over the past decade. In particular, the Nasdaq may no longer outperform the S&P 500 as much as it has recently.
Generally speaking, though, if you’re retiring in 30, 20, 10, or even less years, it can still be a good idea to put money into a fund like the Invesco QQQ. With excellent diversification into top growth stocks, your portfolio is likely to increase in value if you put money into the fund.
This is a much safer option than just investing in a few growth stocks. While there is no guarantee as to what growth rate you will achieve on average over the course of your investment, investing in growth stocks can at least put you in a great position to outperform the market.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. David Jagielski does not own any of the stocks mentioned. The Motley Fool owns and recommends Amazon, Meta Platforms, Nvidia, and Tesla. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
