The major reason most people invest is to increase their money for retirement. You may almost certainly turn those six figures into a $1 million retirement fund if you have $100,000 to invest and time on your side. There are no methods that are foolproof, but there are ones that have withstood the test of time. Here are three strategies to consider.
1. Invest a lump sum, then sit back, and wait
Nothing works quite like compounding when it comes to investing. It’s why Albert Einstein is credited with referring to it as the “eighth wonder of the world.” You should make money on your investments, but you would want to reinvest those returns in order for them to produce a future return — and that’s what compounding is about. Compounding allows $100,000 to become $1 million without much effort or dedication over a period of years.
Let’s suppose you put down a one-time $100,000 investment into an S&P 500 index fund and get a 10% average annual return in the long run. And of course, year-to-year fluctuations will occur, but if you have patience, you can expect it to fluctuate around that rate on average. If you invested that one-time cash investment and waited 25 years for the returns to come back, your account would be worth over $1 million dollars.
2. Speed up the process
Let’s suppose you have $100,000 to invest right now. It doesn’t imply that you should cease investing in the future just because you have the money. If you don’t want to wait 25 years for your $100,000 to grow into a million dollars, you may continue contributing and accelerate the process. Let’s say you put up an additional $500 each month (the same as IRA contribution limits for individuals under 50). With those same rates of return, it would take roughly 20 years for you to become a millionaire if you contributed an extra $1,000 every month.
There’s no need to spend $100,000 and become complacent; utilize your future earnings for you.
3. Use dividend reinvestment programs
A dividend reinvestment program (DRIP) is a brokerage service that allows you to have your dividends paid back into your account, where they will be reinvested in additional shares of the same company or financial investment. Rather than taking dividends as cash, re-investing them to increase your overall holdings might have a bigger impact on compounding interest and help you retire early. If a 2.5 percent yield was paid by the same fund for all 25 years, you would have over $1.9 million in retirement money.
While paying quarterly dividends in cash isn’t bad, it may be far more lucrative if you wait to receive cash payments until retirement. Even a modest 2% dividend yield would translate to around $38,000 in dividends each year if you amassed $1.9 million in a dividend-paying stock. This might be a wonderful addition to other sources of retirement income, such as a 401(k), IRA, or Social Security benefits.
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