Very few stocks can be expected to build a million-dollar nest egg over several decades — but Alphabet just might fit the bill.
Online services giant Alphabet (GOOG 0.72%) (GOOGL 0.83%) has made plenty of millionaires over the years. You’d have more than a million dollars in the Google parent’s stock today if you invested just $15,000 when it entered the public stock market in 2004. If you put the same cash to work in a broad market tracker like the SPDR S&P 500 ETF Trust (SPY 0.66%) instead, you’d have a total return of just $105,000:
GOOGL Total Return Level data by YCharts
The secret sauce in million-dollar portfolios: Time and patience
But you can build a million-dollar portfolio without market-crushing stars. Take the index tracker’s compound average returns of 10.3% over that 20-year period, commit to making a modest investment every month, and let it run for a few more years.
For example, imagine setting up an automatic investment of $100 per month at the age of 20. There’s no seed money to start that portfolio, no contribution increases over time, and you’re sticking with that S&P 500 (^GSPC 0.70%) index tracker, automatically reinvesting its dividends in more shares of the exchange-traded fund (ETF) along the way.
$100 a month isn’t nothing, but the commitment is arguably small enough to work for most people with a day job. 44 years later, at the reasonable retirement age of 64, you will have invested a grand total of $52,800 in a simple index ETF. And thanks to the magic of compound returns, you’d have about $1.07 million in your retirement account.
The bigger they are, the harder they fall
Many diversified mutual funds or ETFs can handle a long-term investment like the example above. Set it, forget it, and laugh all the way to the bank after a few decades.
But very few single stocks can carry that load. Oceans rise, empires fall, and even the most robust giants aren’t immune to unexpected downturns, shifting consumer tastes, and technological progress. Let’s check out a couple of examples.
- At the turn of the millennium, General Electric (GE 1.25%) boasted the second-largest market cap of all at $508 billion. By now, the industrial empire has split into three separate companies whose market caps add up to about half of the January 2000 footprint.
- Enron or Lehman Brothers are more dramatic examples of crumbling empires, and the list is long. Among the 1,925 stocks in the Russell 2000 index, only 640 have a stock market history of at least 25 years.
- Once, I bought a couch with a lifetime warranty from what had once been the largest department store of all. Six months and a bad holiday season later, Montgomery Ward filed for bankruptcy and liquidated the whole business. the company couldn’t handle the one-two punch of big-box retailers and the early years of online shopping. So much for lifetime warranties.
Why Alphabet is built to last
In light of these examples, it’s clear that very few companies can be expected to thrive over several decades. However, there are exceptions to the rule — and I believe Alphabet is one of those rare survivors.
Built to thrive in a variety of economic environments thanks to the ultra-flexible Alphabet umbrella organization, Alphabet has the ability to expand and explore in many different industries. If the online search and advertising revenues dry up, Alphabet would rely on the Android smartphone, YouTube video platform, and Google Cloud decentralized computing service in the short term. Meanwhile, promising side gigs like the Waymo self-driving taxi service, Calico medical research group, or Verily health data unit could pick up the long-term baton. Or maybe Google Cloud will just run with it instead, powered by its artificial intelligence expertise.
Alphabet’s portfolio of potential business stars will change over time, and I probably haven’t even seen their best ideas yet. And that’s exactly why I think the company is ready to run for decades to come. I don’t recommend putting your entire nest egg in one basket, unless that basket holds a diversified fund — but if you absolutely have to do it, Alphabet’s stock is at the top of my candidates list.
A flexible business model and proven success in building strong technology solutions position Alphabet to match or even exceed the S&P 500’s long-term returns. And if the stock can indeed outperform the average S&P 500 returns in the long run, you’ll reach your million-dollar retirement goal even faster.
And a small boost to the return rate would make a big difference in 44 years — beating the Street’s average returns by a single percentage point gives you a $1.5 million portfolio in the end:
Exported from Investor.gov, a service of the U.S. Securities and Exchange Commission.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.