Turning a modest $100,000 into a comfortable $1 million retirement savings might seem like an ambitious and distant dream. But with strategic planning and constant effort, it is an achievable goal. Depending on your time horizon and risk appetite, four effective strategies could help you turn your $100,000 savings into a $1 million retirement fund.
In fact, $100,000 is a significant capital sum with which to strategically build a million-dollar retirement fund over time. This is how you can achieve the noble dream.
Entrepreneurship: Start a business, grow that side business
The quickest way for young investors to turn $100,000 into a million (or billions) dollars is to own a business, especially a profitable one. The Internet is awash with success stories of people whose side jobs more than replaced their regular job income and eventually became million-dollar businesses.
Depending on the business design, initial capital investments could range from as little as $100 for Internet-based activities to several thousand. Once the company starts generating enough cash flow to sustain itself, it can pay dividends, pay you allowances and salaries, and organically fund growth projects.
A successful startup could pay its founder more than a million dollars a year after five short years.
Alternatively, it can sell the business to a strategic investor for multiples of its earnings before interest, taxes, depreciation and amortization (EBITDA). Yes, you can sell the new business for a million dollars or more, even before it is technically profitable. Your future earnings potential could be quite good.
A Canadian inspiration, buy (TSX:SHOP) co-founder Tobias Lütke and his friends developed and launched an e-commerce solution to help run their online store in 2006. The traded “hustle” later appeared on the TSX in 2015. How much do you have today? The Shopify co-founder directly owns 11,619,770 shares and indirectly controls 67,298,750 Shopify shares. Combined, the two positions are worth almost $8.2 billion today.
Beware of the risks! Starting a new business can be time-consuming and extremely stressful. You could lose all your capital if the startup fails, and more than 50% of startups typically fail within their first five years.
Invest $100,000 in growth stocks
Entrepreneurship is not for everyone. However, you could use your $100,000 to buy stakes in large Canadian companies through the stock market. Investing in growth stocks could put you on the path to a $1 million retirement account.
If you had invested $100,000 in former venture capitalist Mark Leonard's property Constellation software (TSX:CSU) 10 years ago, today you could have $1.5 million in your account, or almost $1.7 million if you fully reinvested your dividends.
Investing in growing companies with tangible moats could be a winning ticket to a million-dollar retirement fund. Despite its recent volatility in 2022, Shopify stock has generated capital gains of 3,200% since going public. A $100,000 investment in SHOP stock at its initial public offering in 2015 could have grown to more than $3.2 million today.
However, it would still be necessary to have a high risk tolerance. Growth stocks are more volatile than the overall stock market. It is advisable to diversify your holdings in several names. Joining an investment service could be of great help with great and diversified ideas.
That said, publicly traded companies have lower business risk profiles than startups.
Religiously add more capital
Conservative investors can also grow a million-dollar portfolio over time. You should commit to periodically adding more capital to your retirement fund to grow your capital. A $100,000 investment could take 30 years to grow to $1 million with a conservative 8% annual return on a cheap index exchange-traded fund (ETF). However, regular additions of $10,000 each year could reduce the period to just over 20 years, as the table below shows.
Make the most of tax-advantaged accounts like the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Accounts (RRSP). They can reduce the tax burden on their investments, accelerating their goal to $1 million.
Consistently reinvest cash flows
Continue to reinvest the cash flows you receive from your investments. These include stock dividend payments and interest on bond positions.
An investment of $100,000 in Canadian National Railway (TSX:CNR) 20 years ago it could have grown to almost $1.4 million through capital gains. However, diligently reinvesting CNR stock dividends could have accelerated the portfolio's growth to nearly $1.9 million.
You should keep investing and keep reinvesting, and the $1 million goal could be reached very soon, regardless of which investment strategy you comfortably employ.
