How to invest $100,000 and turn it into $1 million

Since you are investing for retirement, becoming a millionaire can be a reasonable goal. Yes, millionaire status is no longer thin air, and depending on your income needs, you may need to have at least $1 million in the bank to get through retirement. So let’s say you’ve reached a point where you’ve saved $100,000. Can you turn that into $1 million? The short answer is that it is possible, but it won’t happen overnight. If you’re interested in maximizing your investment returns, consider working with a financial advisor.

Turn $100,000 into $1 million step by step

Unless you win the lottery, building a seven-figure portfolio is usually a longer-term game. Having a road map you can follow will help you reach your destination on time. The steps below are a great place to start.

1. Assess your starting point.

The first step to growing from $100,000 to $1 million is taking stock of where you are today. If you have at least $100,000 to invest, you might do pretty well in the savings department. But you also need to consider things like how much debt you have, your income and earning potential, and your overall financial goals.

You also need to be aligned with your time horizon for investing. If you have 30 years left until retirement versus 10 years, this plays a big part in how successful you are at turning $100,000 into $1 million.

2. Measure your risk tolerance.

Risk tolerance and risk capacity are two factors to consider when determining your investment approach. In general, taking on more risk offers the opportunity to earn a higher return. But you also accept a higher potential for losses.

That’s what risk tolerance is – how much risk you are comfortable with. Risk capacity, on the other hand, is the amount of risk you need to achieve your goals. Knowing how the two balance each other is important in determining which investments you will use to turn your $100,000 into $1 million.

For example, cash, bonds, and certificates of deposit are all safe investments. The potential to lose money is usually very low. But you’re not going to see spectacular growth from those investments. Equities, on the other hand, can provide much better returns, especially if you invest in small-cap companies with high growth potential. But the trade-off is accepting the volatility that characterizes the stock market. Find out how much risk you have to take to reach the million dollar mark, and then see if you’re ready to take that kind of risk.

3. Run the numbers.

The next step to reaching $1 million in investment capital is doing some math with different scenarios. Specifically, there are three things to consider: how much you can add to your investments each month; how long you should invest; and the return on your investments.

So, let’s say you are 35 years old and plan to retire at 65. You have $100,000 to invest in the market thanks to a combination of diligent saving and receiving an inheritance. You have an extra $100 a month to invest over the next 30 years.

Using SmartAsset’s investment calculator, your initial investment would grow to just over $930,000, assuming a 7% return.

That’s not bad! But you can’t necessarily count on a 7% return, and even that assumption puts you about $70,000 short of your $1 million goal. So how can you increase your chances of reaching your goal?

There are two approaches you could take. The first is to increase the amount you invest each month. Increasing your monthly contributions to $200 will put you above $1 million. The other option would be to try to get an annual return of more than 7% on your investments. That’s harder to do, and if you’re trying to “beat the market” you could lose if you’re not as good at choosing investments as you thought.

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Finally, note that this example assumes you have three decades to invest. But what if you are 45 years old and retire in 20 years? In that scenario, you would need to increase your monthly investment amount to $1,200 to reach $1 million by age 65, assuming the same 7% return.

4. Allocate your assets wisely.

Whether you have a shorter or longer window of time to grow your investments to $1 million, it’s important to consider asset allocation. This simply means the balance of the assets in your portfolio and how they match in terms of risk and return.

How you allocate assets can largely depend on your preference for an active or passive investment strategy. If you’re a more active, hands-on investor, you may want to spend more time trading individual stocks, mutual funds, or exchange-traded funds to try and get the best returns. On the other hand, if you prefer to be more hands-off, you may want to focus on investing in passive mutual funds, such as index funds.

The key with both is to stay on top of your asset allocation, rather than just set it and forget it. That means rebalancing periodically to make sure your asset allocation is on track to meet your goals. For example, if you’re aiming for an 80% to 20% split between stocks and bonds, you should review your portfolio at least once a year to make sure you don’t stray too far from those numbers.

Automatic rebalancing is something you may be able to take advantage of if you invest with a robo-advisor platform. Robo-advisors can help you determine the best asset allocation, based on the information you provide about your risk tolerance, time horizon, and goals. The platform then automatically adjusts your allocation to help you stay on track.

5. Minimize taxes and fees.

While you may be focusing solely on growth when it comes to investing $100,000 to make $1 million, remember that there is another side to the coin as well. Keeping your investment costs and tax liability as low as possible is crucial to retaining more of your investment returns.

On the compensation side, it’s important to understand things like:

  • Expense ratios for mutual funds and exchange traded funds

  • Trading costs if you buy and sell individual stocks

  • Asset management fees charged by your financial advisor

In terms of taxes, your tax liability is often determined by whether you invest in a taxable brokerage account versus a tax-advantaged retirement account, and how long you hold investments. In a tax-advance account, such as a 401(k) or IRA, you defer taxes on investment growth until you make withdrawals when you retire. A Roth IRA would allow for tax-free distributions in retirement.

With taxable accounts, you pay short-term or long-term capital gains tax on investment gains, depending on how long you hold the investment. The long-term capital gains tax rate applies to investments held for more than one year and is generally the more favorable of the two.

One way to control taxation is to take advantage of tax losses. This involves selling stocks at a loss to offset reported gains. The key is to make sure you don’t buy substantially similar investments within a 60-day sales period, as this could trigger the wash-sale rule and negate any tax benefits.

It boils down

There’s no magic wand you can wave or secret sauce formula to turn $100,000 into $1 million. It all comes down to strategy and making the most of the time you have to invest. The more time you have to grow wealth, the better. But even if you start later, it’s not impossible to hit the $1 million finish line in retirement.

Investment tips

  • Consider talking to a financial advisor about what you need to do to grow $100,000 to $1 million. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool pairs you with up to three financial advisors serving your area, and you can interview your advisor matches for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Calculators can be useful for estimating how much you need to invest to reach $1 million. For example, SmartAsset’s asset allocation calculator can narrow down your selection of securities needed to meet your investment goal.

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