Got $100,000 just waiting to be put to work? First of all, congratulations! You're off to a great start.
On the flip side, although $100,000 might be a tidy sum, it's certainly not enough to fund a nice retirement these days. If you're hoping for a truly worry-free retirement, ideally you'll have $1 million (or more) saved up when the time finally comes.
The good news is, assuming you've got enough time to work with, growing your six-figure stash to the seven-figure mark isn't out of reach. Here's how you can make it happen.
Own the market's top growth stocks at any given time
It stands to reason that if growth is your overarching goal then growth stocks are your ticket to a sweet retirement.
They certainly boast the right kind of performance! Over the course of the past 20 years, the Vanguard Growth ETF (NYSEMKT: VUG) has handily outpaced the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) , which reflects the performance of the benchmark S&P 500 (SNPINDEX: ^GSPC) index. That's an average annual gain of just under 11% versus the S&P 500's average yearly gain of only a little over 8% for the same time frame. The seemingly small differences add up to a lot over time.
VUG Total Return Level data by YCharts
Of course, such a strategy isn't for everyone. The market's best growth stocks are forever changing. Right now it's being led by names like Nvidia and Apple . A decade ago the must-have tickers were Electronic Arts and Avago (which would later become Broadcom ). Twenty years back, Monster Beverage was dishing out monster-size winners.
The point is, to make the most of owning just growth stocks, you need to be able to predict which ones are the next leaders before they become leaders. That's easier said than done. Indeed, most people can't do it reliably enough to make such a strategy worthwhile. This sort of ongoing trading, in fact, can actually undermine your net returns.
Still, if you can stomach the volatility (about 20% more than the average stock) and can always successfully identify the next market leaders, it should only take you a little over 20 years for your portfolio to reach the million-dollar mark.
Let dividends to the heavy lifting
Sound like too much work, or too much risk, or both? It may well be, but it's not your only option. Also, consider just owning a bunch of dividend stocks with a track record of dividend growth that's apt to persist well into the future.
Nobody can truly say what the future holds. There are some very high-odds bets that fit the bill, though. Think companies in industries that are perpetually in demand -- like food, banking , and utilities -- that already have a solid dividend pedigree to protect. For instance, Coca-Cola (NYSE: KO) boasts 62 consecutive years of annual dividend increases. You can bet it's going to do everything in its power to continue being able to make that claim.
Admittedly, this approach doesn't feel high-octane enough to turn a six-figure sum into seven figures in a lifetime. The most reliable dividend growers aren't growth stocks, and their yields aren't exactly high. Their dividends don't soar each and every year either. Again, look at Coca-Cola as an example. Its forward-looking yield is a modest 2.7%, and its last dividend hike was a mere 5.4% improvement.
The key here, however, is time, and reinvesting these dividends in more shares of the stock paying them as they're dished out. In the case of Coca-Cola, for perspective, reinvesting dividends in an initial $10,000 in the stock 30 years ago would leave you with about $130,000 today. On the other hand, not reinvesting those dividends would only leave you with a little less than half that amount.
KO data by YCharts
Notice most of that growth took shape in the last part of the time frame in question, when the compounding effects of owning more shares paying ever-bigger dividends finally started serious exponential growth. The hard part is waiting out the slower-moving early years.
Just buy an index fund and forget about it
That's still more work or more worry than you care to handle? That's OK. The "less is more" philosophy applies to stock picking as well. That is to say, you may actually fare better with the simplest of all approaches. That's owning an index fund like the aforementioned SPDR S&P 500 ETF Trust and never looking back, having faith that this proxy for the broad market will achieve average market returns of around 10% per year.
It's a tough strategy for some investors to embrace. It doesn't feel right to not at least try to beat the market.
The fact is, however, not even most professional investors actually outperform the overall market. Numbers crunched by Standard & Poor's indicate that over the course of the past five, 10, and 15-year time frames, over 80% of large-cap mutual funds available to U.S. investors lagged the S&P 500's gains for those periods.
And no, the few funds that managed to beat the market in one of those time frames didn't also beat it in the others. Market-beating performance is usually rather fleeting.
It's possible you could be an exception to this dynamic. From an odds-making perspective, though, it's unlikely you would be. The lower-risk, higher-odds growth investment for most people is owning a simple index fund. Assuming you'll achieve average returns and reinvest the modest dividends that will paid along the way, it should take you on the order of 25 years to turn $100,000 into a million bucks.
Or do a little of all three
Boring? No argument there ... buying and holding index funds is investing's equivalent to watching paint dry, even if it is the smartest move to make.
There's a reasonable solution to such a problem though. That is, if you'd like to at least give yourself a shot at outperforming the market, do a little of all three of the above. Doing so will also mute your portfolio's volatility, making it easier to stick with your allocation plan when -- not if -- things get a bit rocky for the market.
More than anything though, doing something is better than doing nothing. Even if you don't have $100,000 to start with and you know $1 million is out of reach, start when and where you can with what you can. Once you're going, implementing and updating a plan (any plan) gets much easier.
The $ 22,924 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $ 22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
View the "Social Security secrets" »
James Brumley has positions in Coca-Cola. The Motley Fool has positions in and recommends Apple, Monster Beverage, Nvidia, S&P Global, and Vanguard Index Funds - Vanguard Growth ETF. The Motley Fool recommends Broadcom and Electronic Arts. The Motley Fool has a disclosure policy .