Here’s How You Can Turn $25,000 Into $1 Million by Retirement

Aiming to get your nest egg to $1 million or more by retirement can be an ideal goal to strive for. Whether you hit it or not, it can help focus your efforts on ways to grow your portfolio’s balance over the years.

Whether that means investing every month or prioritizing investing in top growth stocks, just the mentality alone can help ensure you end up in a stronger financial position by retirement than if you didn’t have that goal in mind.

What kind of annual return do you need to grow a $25,000 investment into $1 million?

If you have $25,000 to invest in the stock market today, here’s what that could grow to over the years at different annual growth rates. Historically, the S&P 500 has averaged a return of approximately 9.7%.

Calculations by author.

The odds of reaching $1 million look a whole lot better if you have 30 investing years left. Otherwise, you’ll need to aim for a much higher growth rate than 15%, and that can involve taking on a lot of risk.

But the good news is that you can always add to your investments over time. The table above only assumes you invest $25,000 today and make no additional investments. You can accelerate your portfolio’s growth by either investing more today or adding to your investment over the years.

ETFs can help you balance out that risk

Investing in a top growth stock, such as Nvidia (NVDA 1.40%), could make for a tempting option if your focus is on growth. After all, its whopping 24,000% increase in value over the past decade would have turned $25,000 into an incredible $6 million today. But it’s highly unlikely to generate those types of returns if you were to buy the stock today.

Nvidia is already among the most valuable companies in the world, with a recent market cap of around $2.9 trillion. The danger is that with investors expecting a lot of growth from the business and pricing that into its valuation, there’s a lot of risk that if the company’s growth rate slows down unexpectedly, it could lead to a significant sell-off.

Even if you’re a growth investor, a much better option may be to consider exchange-traded funds (ETFs). Just because you invest in an ETF doesn’t mean you have to sacrifice gains or a lot of upside. There are growth-focused funds that can give you some promising long-term opportunities to grow your portfolio’s balance over time.

One particularly attractive option for growth and tech investors is the Invesco QQQ Trust (QQQ 0.13%). With that fund, you’ll get exposure to Nvidia and many other top stocks. It holds a portfolio of the top 100 non-financial stocks on the Nasdaq exchange. In addition to Nvidia, you’ll get exposure to stocks such as Amazon, Meta Platforms, and Tesla as well. The fund has a modest expense ratio of 0.2%, meaning that diversification won’t cost you all that much.

In 10 years, the fund would have grown a $25,000 investment into close to $130,000 today, when including dividends. That’s far better than the returns you would have generated by just investing in the S&P 500. A similar investment in the broad index would be worth around $83,000 right now.

A growth-focused ETF should be part of any retirement plan

There’s no guarantee that the stock market will produce the same kind of returns in the future as it has over the past 10 years. In particular, the Nasdaq might well stop outperforming the S&P 500 to the same extent that it has recently.

More broadly, though, if you’re retiring in 30 years, 20 years, 10 years, or even fewer years than that, putting money into a fund like the Invesco QQQ can still be a good idea. With some excellent diversification into top growth stocks, your portfolio is likely to rise in value by putting money into the fund.

It’s a much safer option than putting your investment into just a few growth stocks. While there’s no guarantee what growth rate you’ll end up averaging out over the course of your investment, by investing in growth stocks, you can at least put yourself in an excellent position to outperform the market.