Building serious wealth with only a little money isn't about picking the right stocks, but about giving your portfolio as much time as you can.
There's no denying $1 million isn't the head-turning measure of wealth it used to be. The U.S. Census Bureau estimates that about one out of every 10 people living in the U.S. is worth a million bucks, if not more. Nevertheless, a $1 million retirement nest egg would be a great source of comfort for most working-class Americans.
The thing is, a seven-figure stash actually isn't out of reach for most of us. The key is using all the time you have, and doing smart things with your seed money. In this case, "smart" just means getting into the market and leaving your investments alone for as long as you can. A modest $50,000 now could easily get you to $1 million in less than a lifetime.
Multiple paths to $1 million
Sounds impossible? It isn't. I'll even show you the math, in pictures. But first things first.
For the purposes of this exercise I'm going to make three key assumptions. The first of these is, you'll be investing $50,000 into the broad market using an index fund like the SPDR S&P 500 ETF Trust (SPY 0.66%), which is meant to mirror the performance of the S&P 500 index (^GSPC 0.70%). Second, let's assume the S&P 500 continues to dish out -- on average -- total gains of around 10% per year that you reinvest in the same fund. Finally, let's say you're growing your nest egg in a tax-free account like an IRA or an annuity.
With those three factors in play, the graphic below speaks for itself. What started out as $50,000 ends a 32-year stretch as a little over $1 million. Most of this growth comes from earnings not on your originally contributed principal, but earnings on your cumulative growth. For perspective, your net gains in the final year of this projection model are nearly $96,000.
And to be clear, this million-dollar portfolio was founded only on a one-time investment of $50,000.
There's clearly a "catch" -- two of them, actually. One of them is, you may not have $50,000 at your disposal right now to deposit into a retirement account. The other catch is, you may not have 32 years left until you retire.
That's OK, though. The underlying principles remain the same no matter how much or how little money you have, or how little time you have left until you reach your planned retirement. Those principles are, use the money you do have (or can come up with) as soon as you can, and be in the market for as long as you can.
Here's an alternative scenario that may be more applicable to you. Let's say you don't have any major cash hoard right now, but can scrape together an extra $3,000 every year for the next 32 years. Assuming you're achieving the average 10% gain the S&P 500 produces and reinvesting those gains in the same fund, you'll be sitting on a stash worth something on the order of $660,000. Not bad.
Or, maybe you took a different route, choosing to spend several years in school or starting a business that didn't pay off much initially, but paid off handsomely later in life. Let's say you've only got 25 years before you retire, but you can comfortably contribute $10,000 every year to a retirement fund in each of these 25 years. Under this scenario, you'd end this time frame with a bit more than $1 million.
Again, notice how quickly your gains accelerate at the end of your saving and investing years. That's when your new earnings on your old earnings really start to build. Under this third scenario, investment gains reached a healthy $60,000 in the 25th and final year alone, assuming the market achieved its typical 10% annual return.
Just get started
The point is, whether you've got a modest-sized wad of money right now, can only find a few extra bucks a year to put in retirement fund, or have to postpone investing now in exchange for bigger paychecks later, don't think for a minute that becoming a millionaire is too far out of reach. Time is your biggest ally as an investor, so do whatever you can as soon as you can. Even a small amount now is better than nothing.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
FAQs
How To Turn 50K Into 100K – The Best Methods To Double Your Money
- Start An Online Business. ...
- Invest In Real Estate. ...
- Invest In Stocks & ETFs. ...
- Invest In A Blog. ...
- Retail Arbitrage. ...
- Invest In Alternative Assets. ...
- Create A Rental Business. ...
- Invest In Small Businesses.
At the current Treasury rate of 4.3%, a $1 million portfolio would generate about $43,000 per year, or roughly $3,500 per month. With your Social Security payments that would generate about $6,000, again enough to live comfortably in most places.
What's the best investment for 50K? ›
Here are 10 options to help you and your family use $50K to build wealth and financial stability over time.
- Max out your retirement accounts. ...
- Contribute to a health savings account (HSA) ...
- Fund a 529 college savings account. ...
- Stash it in a high-yield savings account or CD. ...
- Invest in Treasurys. ...
- Invest in an index fund.
Start Saving as Soon as Possible
“If you are age 30 today and invest $600 a month from now to age 65, if your investments earn an average return of 7% a year, by age 65 you'll have $1 million,” said Dana Anspach, founder and CEO of financial planning firm Sensible Money.
How much is 5% interest on $50,000? ›
5% APY: With a 5% CD or high-yield savings account, your $50,000 will accumulate $2,500 in interest in one year.
Can you turn 50k into a million? ›
A $50,000 windfall could really get you started securing your financial future. With time and some smart financial planning, you could create financial stability for yourself and your family — and could even turn your money into a million dollars by making some really basic investments.
What percentage of retirees have a million dollars? ›
If you have more than $1 million saved in retirement accounts, you are in the top 3% of retirees. According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
At what age should your net worth be 1 million? ›
From there, average net worth steadily rises within each age bracket. Between 35 to 44, the average net worth is $549,600, while between 45 and 54, that number increases to $975,800. Average net worth surges above the $1 million mark between 55 to 64, reaching $1,566,900.
How to make money from $50,000? ›
Ways To invest $50,000
- Invest into your superannuation fund. Superannuation is one of the largest investments you will ever have, so it's worth making extra contributions. ...
- Investing in an Exchange Traded Fund (ETF). ...
- Buy an investment property. ...
- Invest in annuities. ...
- Invest in managed funds.
1. High-Yield Cash Account. Considered one of the safest investments, a high-yield cash account can potentially keep your money safe. For example, savings and checking accounts, money market accounts and certificates of deposits (CDs) are considered cash accounts.
Can you live comfortably on 50k? ›
For many people, $50,000 is enough income to live comfortably, although your location and lifestyle are important factors. In coastal cities, that money doesn't go as far, but there are certainly households in New York City that live on one or two Social Security incomes amounting to less than $50,000.
How much money do I need to invest to make $4000 a month? ›
Making $4,000 a month based on your investments alone is not a small feat. For example, if you have an investment or combination of investments with a 9.5% yield, you would have to invest $500,000 or more potentially. This is a high amount, but could almost guarantee you a $4,000 monthly dividend income.
What is the magic number for retirement savings? ›
Here's how much you would need to put into a retirement account each month, starting at different ages, to reach the $1.46 million “magic number” by age 65, according to Northwestern Mutual's “Planning & Progress Study 2024.” Figures are based on a 7 percent average return compounded daily.
What is the 25x rule for retirement? ›
The rule of 25 says you need to save 25 times your annual expenses to retire. To get this number, first multiply your monthly expenses by 12 to figure out your annual expenses. You then multiply that annual expense by 25 to get your FIRE number or the amount you'll need to retire.
How can I double my money legally fast? ›
The classic approach of doubling your money involves investing in a diversified portfolio of stocks and bonds and is probably the one that applies to most investors.
What to do with 50k lump sum? ›
The safest way to invest $50,000 would be to put it into a savings account or CD. However, you could also invest in stocks or real estate, start or add to a retirement account, and more. Your goals, risk tolerance, and time horizon until retirement will determine the right choice for you.
How to double $5,000 dollars quickly? ›
For a quick return on a $5,000 investment, consider options like stock trading, especially in high-growth sectors or investing in a diversified mutual fund. Short-term P2P lending can also be a way to see quicker returns, though it carries higher risk.
