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3 Ways to Grow $100,000 Into $1 Million for Retirement Savings

The Motley Fool logo The Motley Fool 12/23/2021 Ryan Downie

You might need $1 million to retire comfortably. Even with that much, the 4% rule would allow just $40,000 per year in retirement account distributions, and Social Security benefits can only add so much. Luckily, there are a few different strategies to help you build wealth toward that millionaire retirement goal.

1. Invest to grow with the market

This is the simplest option by far, but it's going to require patience. Index funds are designed to deliver that performance. There are numerous low-cost ETFs and mutual funds that you can invest your 401k, IRA, or brokerage funds.

There's nothing exciting about tracking the market, but it's a proven strategy for passive investors. Stock market growth is never smooth and linear, but it does tend to average a nearly 10% annual return over the long term. There are crashes and booms along the way, but the overall trend line has been reliable.

If you can achieve an 8% compounding annual rate of return on $100,000, it will take 30 years for that capital to grow into $1 million.

Happy retiree pointing to a handful of $100 bills. © Getty Images Happy retiree pointing to a handful of $100 bills.

However, there are no guarantees with this approach. Index investors have to resist the urge to panic and sell their stocks during corrections and market crashes. The strategy can also be sabotaged by greed. Chasing growth stocks near the top of a market cycle is a great way to magnify losses. You probably also have to pay fees and taxes along the way, depending how you invest, so your net returns might fall short of the average.

2. Invest to outpace the market

This is easier said than done. Most active fund managers don't achieve this over the long term -- and they're accomplished professionals. There are a few reasons for that surprising fact, and investors can still set their sights on market-beating performance.


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Long=term investors who want to outpace the indexes should focus on two key characteristics: wide economic moats and above-average growth rates. Companies with those features are able to retain their competitive position for years, and the rapid expansion of their sales and cash flows should drive share prices higher as well.

Once you've found strong stocks for investment, plan to buy and hold for the long haul. Only adjust those positions after significant shifts in fundamental outlook or valuation.

Investors love some of today's technology leaders because they meet those criteria. There are also some great ETFs that track growth indexes or only invest in high-growth niches.

Again, there are no guarantees with this approach. In fact, you open yourself to more risk -- for example, that your analysis is faulty or that a single company can poison your overall performance. The potential rewards, though, are bigger returns and a quicker timeline. If you can achieve a 10% rate of return, it will only take 25 years to reach $1 million. That time frame falls to 21 years if you can deliver 12% annual returns.

It's rare to achieve this reliably over the long term, so don't build your entire financial plan on the assumption that you'll outwit everyone else in the market.

3. Save more

There's no reliable get-rich-quick scheme in the stock market. We all hear stories about people making fortunes trading, especially with the latest cryptocurrency craze. There's certainly opportunity out there, but that's really speculation rather than investing -- and speculation has produced a lot more losers than winners.

As mentioned, even excellent returns take a long time to multiply your holdings by 10. If you want to speed up that timeline, the best way to do that is to continue saving and building your assets. It's not always feasible, but households should aim to save 15% to 20% of annual income. That's around $1,500 per month for the mean U.S. household.

Consider the hypothetical 8% average annual return from index funds that was discussed above. It would take 30 years for $100,000 to grow into $1 million in that scenario, but that timeline can be sped up drastically by contributing with regular capital contributions. If you can save and invest an additional $1,000 per month, it would take just under 20 years to surpass $1 million.

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