Becoming a millionaire remains an appealing goal no matter how many things change in the world of finance. One thing that never seems to change, however, is the number of questionable investment tips proffered on the internet that promise a quick path to riches.
Of course you can invest your way to success -- but the truth is that it takes diligence and a lot of time. Any attempt to get there quickly can put your money at serious risk.
Suppose you have accumulated $100,000, either through a windfall or savings. What are the best ways to invest money to turn that $100K into $1 million? A few different scenarios illustrate the effort and risk that is involved.
Return on investment to turn $100K into $1M
If you invest $100,000 for 10 years, it would take an annual return of 25.90 percent to amass $1 million. Lengthen the time frame out to 20 years, and the required annual return on investment drops to 12.25 percent.
Suppose, instead, that you give yourself 30 years to turn $100,000 into $1 million. Yes, 30 years may be an awfully long time, but it brings the average annual return needed to turn $100K into a million down to just 8 percent. Becoming a millionaire is well within the realm of possibility when you give your money this extra time to grow.
|ROI Needed To Turn $100K Into $1M|
How to invest money wisely
Looking at how to invest money for growth helps underscore the importance of allowing plenty of time for your investments to accumulate value. In short, a wise investment strategy attempts to minimize risk as it pursues growth, offering a more realistic approach to investing for most people as well.
Average U.S. stock market ROI
Over the long run, U.S. stocks have averaged a return of 9.65 percent per year, though they have experienced single-year losses of as much as 43.81 percent along the way. The far safer investment of 10-year Treasury bonds has averaged 4.88 percent.
Unrealistic ROI time frames
Since it takes a 25.90 percent return to turn $100,000 into $1 million in ten years, you would have to earn an average return more than 2 1/2 times the stock market's historical norm to reach that goal. That's a tough return to get for a single year, let alone trying to sustain that rate of success over a decade. Attempting this would require extremely high-risk, speculative strategies with a high probability of failure.
Trying to get to $1 million in 20 years would require a 12.25 percent average annual return. This would imply substantially beating the market for the next two decades. Many have tried, but few have succeeded in sustaining that level of performance.
A realistic ROI balances risk and reward
With just an 8 percent required return, reaching $1 million in 30 years is within the realm of possibility. It would require you to have the majority of your money in stocks, which would mean you'd have to live through some ups and downs with no guarantee of success. The good news is that 30 years allows a fair amount of time for those ups and downs to work themselves out.
How to invest money for growth
Consider one more scenario: investing for 30 years while adding an additional $5,000 a year in savings. This would mean that, between the initial $100,000 investment and your yearly savings, you would be contributing a total of $250,000. If you do this, you can reach $1 million with just a 6.2 percent average annual return over 30 years. That's a more realistic goal that would allow you to stabilize your investment portfolio with some lower-risk investments, though the primary emphasis should still be on stocks and other growth vehicles.
In short, the goal of growing your investments to a nest egg of a million dollars is realistic if you are willing to put in the time and effort. If anyone promises you an easier way, they are probably trying to sell you something that is not good for you.