How to Invest $100k to Make $1 Million

August 25, 2023

2

Who wants to be a millionaire? You don’t have to be a game show contestant to answer that question. For many Americans, $1 million is the target goal of their retirement account. The key challenge is getting there. Figuring out how to invest $100k to make $1 million obviously isn’t that straightforward, but we have some ideas lined up for you.

⏳ The best answer is: not overnight. Investing takes time and planning. Here is how you can build wealth confidently and realistically.

The Waiting Is the Hardest Part

Every investor faces some form of financial FOMO: the “Fear Of Missing Out.” For example, if you’d invested just $1,000 in Amazon stock at its initial public offering (IPO) in 1997, you’d cross the $1 million mark in under 20 years^[1].

But as much as we love these stories of overnight success, they’re exceedingly rare and easier to identify in hindsight. The truth is that the investments with the highest growth potential also carry the highest risk. That trendy new tech startup you’ve been eyeing offers no guarantee of success.

Instead, investors should focus on long-term growth over short-term strategies. Maybe that doesn’t sound as exciting as getting in on the ground floor of the next Apple or Amazon. But it’s a more reliable way to build wealth over time, as long as you know how to invest.

Ways to Invest $100k to Make $1 Million

What’s the best way to invest $100k? There’s no “right” answer, and investors have multiple options for growing their investments safely and reliably. Here are some of the possibilities. This is how to invest $100k to make $1 million:

1. Build a Stock Portfolio

The simplest way to invest 100k to make $1 million is by purchasing individual stocks. Historically, the stock market has delivered an average rate of return of 10% for at least 50 years^[2]. This means that if you invested $100k in a well-balanced stock portfolio and added $400 to $500 per month, you could reach your $1 million goal in roughly 20 years.

But there are some caveats to consider. This assumes that the stocks in your portfolio match this historic 10% performance. If your portfolio only yields an 8% return, it could take 25 to 30 years before you reach your goal.

Additionally, purchasing individual stocks takes both planning and monitoring. To achieve your greatest yields, you’ll need to actively manage your portfolio by adding and subtracting stocks to mitigate your losses and maximize your gains.

This can take time unless you also invest in a broker who can manage your portfolio for you. That costs money, and many managers will only hire larger accounts.

📊 Learn more: Embarking on your investment path? Get acquainted with essential steps to shape your first stock portfolio in our recent piece.

2. Purchase a Mutual Fund, Index Fund, or ETF

Investing in the stock market doesn’t always require you to pick your own stocks. You might also consider purchasing a “fund,” which is a basket of stocks that typically represent a diverse range of industries.

Mutual funds are among the most common. A typical mutual fund contains well over 100 different securities, which means that investors gain immediate access to a diversified portfolio.

Exchange-traded funds (ETFs) are rising in popularity, partly because they trade on the stock exchange just like a regular stock, which gives investors greater flexibility.

Don’t overlook index funds for long-term growth potential. Rather than trying to “beat” the market, index funds are designed to track a particular market index, such as the S&P 500 or Nasdaq. Index funds often outperform carefully selected stocks in an actively managed mutual fund, especially when you take management fees into account.

The advantage of a fund is that you get built-in diversification, and some funds are actively managed by the fund manager to maximize your gains, making it a great way to invest $100k to make $1 million.

3. Pursue Dividend Reinvestment

Some companies pay dividends to their shareholders. Dividends aren’t typically large but offer some passive income to shareholders based on the number of shares that they own.

If you want to use $100k to make $1 million, you might consider taking advantage of these dividend stocks. You can use the extra windfall to increase your investment without spending a dime of your own money.

Look for companies that offer what’s called a dividend reinvestment program (DRIP). This means that you can use the company’s dividends to purchase additional shares of stock, which also increases the amount you’ll receive in future dividends.

Dividend growth investing is a proven strategy for achieving market-beating gains and mitigating losses during downturns.

4. Invest in Real Estate

If you want to invest $100K to make $1 million, considering diversification is key. One promising avenue is real estate. The most direct way to invest in real estate is by purchasing an investment property on your own. You can either “flip” the property to earn a profit or rent it out to collect passive income from your tenants.

You can also invest in real estate investment trusts (REITs). An REIT functions very much like a mutual fund in that it allows investors to build real estate portfolios featuring companies that own or manage valuable real estate.

REITs are a convenient option for real estate investing, and many REITs can be purchased from a major stock exchange, just like a stock or ETF.

5. Navigate Inflation With a Government Bond

While the stock market has yielded an average 10% rate of return, there have been periods in which the rate of inflation outstripped the benefits of stock market investing. For instance, if an investment asset yields a return of 7%, but the national rate of inflation is at 9%, you’re actually losing money even if stock prices are rising.

Diversifying your investment portfolio with government bonds can protect you during periods of inflation. The U.S. Treasury offers something called Treasury Inflation-Protected Securities (TIPS), which are a type of bond designed to match the current inflation rate, which prevents you from experiencing loss.

6. Save Your Money in a High-Yield Savings Account

Don’t discount the possibility of earning interest from a high-yield savings account, such as a certificate of deposit (CD) or money market account (MMA). Some of these accounts offer interest rates as high as 5%.

This means that if you saved just $10,000 in a 6-month CD with an interest rate of 5%, you’d earn just under $250.

Granted, this may not sound like much, but a high-yield savings account comes with none of the risks of the stock market. You likely won’t reach your $1 million investment goal with a savings account alone, of course, but this can be a smart way to stash your money until you’re ready to make a decision about what you want to invest in.

Tips for Maximizing Your Investment

If you really want your $100k to make $1 million, you’re going to have to build your investment over time by finding ways to add to your total investment. Try these tips to help you increase your investment over time and reach your goal of becoming a millionaire.

1. Start Early

According to a 2022 survey, 45% of Americans regret not investing more in the stock market when they were younger^[3]. Don’t let that be you. The sooner you can start investing, the better you’ll be able to see your wealth build over time.

Besides, when you’re young, you have more room for risk in your portfolio. This is why younger investors can be a bit more aggressive in their early years. They essentially have a lifetime to make course corrections.

2. Invest Regularly

Even if you’re able to make an initial $100k investment, it doesn’t mean that you’re done. If you want to invest $100k to make $1 million, you’ll need to add to your investment over time.

Be as consistent as possible. Some investors might even automate their finances so that they can regularly put away $400 or more a month toward their investment portfolio. This way, you’ll keep your investment goals a priority and can experience realistic growth toward your future.

3. Reinvest Your Investments

You don’t necessarily have to wait 20 years or more to “cash in” on your investments. On the contrary, if you want to invest $100k to make $1 million, you can take the earnings you receive from your investments and reinvest them to build your total portfolio.

Some dividend stocks let you reinvest your earnings right back into the company, but you might also consider using your earnings to invest in other companies or other investment vehicles. For example, if you collect money from a rental property, you might use this passive income to contribute to your stock portfolio.

4. Avoid Taxes on Your Retirement Accounts

Sometimes, building wealth isn’t about the money you’re making as much as it’s about the money you’re saving. If you’re saving for retirement, you might consider using a tax-advantaged account such as a traditional IRA or 401(k).

Both of these options allow you to deduct the cost of contributions from your current income taxes, which will give you more money to invest in the years prior to retirement.

Just be aware that you’ll have to pay tax on any distributions once you reach retirement age, and your accounts have stipulations on when you can start receiving distributions.

5. Take Advantage of Employer Contributions

Does your employer offer matching contributions for your retirement account? If so, don’t leave any free money on the table.

Every employer will set a limit on how much they will contribute to the worker’s retirement account. Always contribute enough to receive your full employer match, which can maximize the amount of money you’re saving for retirement.

6. Pursue Growth Stocks

If your goal is to invest $100k to make $1 million, you’ll most likely do so through the stock market.

But while startups may have a lot of promise, they come with high risk. Instead, focus on growth stocks. These are companies that seem poised for rapid growth. This is a risky strategy because growth doesn’t always match predictions, but it can achieve stellar returns.

7. Diversify Your Portfolio

What is your risk tolerance level? Younger investors can afford to invest in a few hot startups, though as you get older, you’ll need to adjust your strategy to protect your investments.

The best way to do this is through diversification. While diversifying your portfolio means purchasing stocks from multiple industries — such as healthcare, tech, or consumer staples — it also means purchasing multiple types of assets, like stocks, bonds, and real estate.

That way, if one stock or asset takes a downturn, the rest of your portfolio remains intact and your chances to invest $100k to make $1 million remain high.