Are you aiming to amass $1 million for retirement? That's a great goal -- though some would have you question whether that will be enough. Whether you have $100,000 right now or you're starting from scratch, and whether you're aiming for $1 million or $2 million or more, there are lots of smart strategies to employ.
Here are five approaches to investing that can help you reach your retirement goals. See which ones make the most sense for you and then aim to act on some or all.
Image source: Getty Images.
1. Buy the haystack
It's hard to beat the stock market when it comes to building long-term wealth. Consider these average annual returns, from Wharton Business School professor Jeremy Siegel:
|
Asset Class |
Annualized Nominal Return, 1802 to 2021 |
|---|---|
|
Stocks |
8.4% |
|
Bonds |
5.0% |
|
Bills |
4.0% |
|
Gold |
2.1% |
|
U.S. Dollar |
1.4% |
Source: Stocks for the Long Run, Jeremy Siegel.
See? The supremacy of stocks holds true over shorter periods, too. For example, according to Siegel, over the 75 years between 1946 and 2021, stocks grew at an average annual rate of 11.3%, vs. 5.8% for long-term government bonds. The lesson here is that stocks outperform bonds over most long periods.
That 11% return isn't guaranteed, so the table below shows how your money might grow at 8% annually:
|
Growing at 8% for |
$7,500 invested annually |
$15,000 invested annually |
|---|---|---|
|
5 years |
$47,519 |
$95,039 |
|
10 years |
$117,341 |
$234,682 |
|
15 years |
$219,932 |
$439,864 |
|
20 years |
$370,672 |
$741,344 |
|
25 years |
$592,158 |
$1,184,316 |
|
30 years |
$917,594 |
$1,835,188 |
|
35 years |
$1,395,766 |
$2,791,532 |
|
40 years |
$2,098,358 |
$4,196,716 |
Source: Calculations by author.
So how should you invest in stocks? Well, consider not trying to become a stock-market genius, picking tomorrow's big winners today. Instead of trying to find those needles in a haystack, you might just invest in the entire haystack. A broad-market index fund is great for that -- and even Warren Buffett approves. Here are few to consider:
- Vanguard S&P 500 ETF (VOO 1.29%)
- Vanguard Total Stock Market ETF (VTI 1.31%)
- Vanguard Total World Stock ETF (VT 1.03%)
2. Consider the power of dividends
Another smart move is including healthy and growing dividend-paying stocks in your portfolio. They offer fairly dependable regular income, plus likely stock-price appreciation over time, plus likely dividend increases over time. It's win-win-win!
Dividend payers are no slouches, either. Check out the numbers below, adapted from a Hartford Funds report:
|
Dividend-Paying Status |
Average Annual Total Return, 1973-2023 |
|---|---|
|
Dividend growers and initiators |
10.19% |
|
Dividend payers |
9.17% |
|
No change in dividend policy |
6.74% |
|
Dividend non-payers |
4.27% |
|
Dividend shrinkers and eliminators |
(0.63%) |
|
Equal-weighted S&P 500 index |
7.72% |
Data source: Ned Davis Research and Hartford Funds.
Again, you don't have to hunt for the best dividend payers. Instead, consider the following solid exchange-traded funds (ETFs) can quickly have you invested in lots of good dividend payers:
- Schwab U.S. Dividend Equity ETF (SCHD 0.66%)
- iShares Core Dividend Growth ETF (DGRO 0.65%)
- Vanguard Dividend Appreciation ETF (VIG 0.66%)
3. Reinvest your dividends
Here's a practice that can turbocharge your investing: Reinvest your dividends! Sure, if you're already retired, you might just use your dividend income for your living expenses. But if you're still working, saving, and investing, let your dividend income accumulate in your investment accounts and then, now and then, plow it into more shares of your most promising stocks or funds.
Better still, some good brokerages will automatically reinvest your dividends for you.
4. Spice things up with some growth stocks
It's fair to wish for above-average returns instead of average returns. If that appeals to you, you might devote a portion of your portfolio to growth stocks. Growth stocks are tied to companies growing at a faster-than-average rate, such as: Nvidia, Mercado Libre, Amazon.com, The Trade Desk, Intuitive Surgical, and Salesforce.
Of course, growth stocks can be volatile, and some of them will flame out, do it's good to protect yourself by spreading your dollars across a bunch of them. Our Foolish investing philosophy suggests buying into around 25 or more companies and aiming to hang on to your shares for at least five years.
You can make it even easier on yourself, again, by investing in one or more high-powered ETFs. A few to consider are:
- iShares Semiconductor ETF (SOXX 2.61%)
- Vanguard Information Technology ETF (VGT 1.86%)
- Vanguard Growth ETF (VUG 1.68%)
- Vanguard S&P 500 Growth ETF (VOOG 1.83%)
5. Be diligent and patient
Finally, this strategy is the most important of all: You'll need to be patient and diligent. You'll need to keep investing for many years -- no matter whether the stock market is soaring or slipping. You'll have to not get disillusioned. (If you feel yourself losing interest or hope, find some good books on investing -- they can remind you of what's possible, and of how your money can grow like gangbusters.
However you go about it, be sure you've got a solid retirement plan and that you're executing it.
