Here’s how you can turn $25,000 into $1 million in retirement

The desire to bring 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 you focus your efforts on ways to increase portfolio balance over the years.

Whether that means investing every month or prioritizing investing in growth stocks, just the mindset can help ensure you end up in a stronger financial position by retirement than if you had he didn’t keep this 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 it could grow to over the years at different annual growth rates. Historically, S&P 500 had an average return of about 9.7%.

Calculations by author.

The odds of reaching $1 million look much better if you have 30 years left to invest. 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 the growth of your portfolio by either investing more today or adding investments over the years.

ETFs can help balance this risk

Investing in a top growth stock such as Nvidia (NVDA 1.40%)could be a tempting option if you’re focused on growth. After all, its whopping 24,000% increase in value over the past decade would have turned $25,000 into $6 million today. But you’re highly unlikely to generate those kinds 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 capitalization of about $2.9 trillion. The danger is that with investors expecting high growth from the business and pricing in its valuation, there is a high risk that if the company’s growth rate unexpectedly slows, 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 many advantages. There are growth-focused funds that can offer you promising long-term opportunities to increase your portfolio balance over time.

A particularly attractive option for growth and technology investors is Invesco QQQ Trust (QQQ 0.13%). With this fund, you’ll get exposure to Nvidia and many other top stocks. Holds a portfolio of the top 100 non-financial stocks on Nasdaq change. In addition to Nvidia, you will gain exposure to stocks such as Amazon, Meta platformsand adze also. The fund has a modest expense ratio of 0.2%, which means diversification won’t cost you that much.

In 10 years, the fund would have grown a $25,000 investment to nearly $130,000 today, including dividends. That is much better than the returns you would have generated just by investing in 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 is no guarantee that the stock market will produce the same kind of returns in the future as it has in the past 10 years. In particular, the Nasdaq may stop outperforming the S&P 500 to the same extent it has recently.

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

It is a much safer option than investing in just a few growth stocks. While there is no guarantee of the growth rate you will average over the course of your investment, by investing in growth stocks you can at least put yourself in a great position to outperform the market.