When it comes to securing your financial future in retirement, there's no time like the present to start planning.
With an average total return of 9.6% per annum for ASX shares over the last three decades, building a $100,000 nest egg into a $1 million retirement fund has been possible in the past.
In fact, if you achieved that return, it would have taken approximately 25 years to turn $100,000 into $1 million.
And while we cannot guarantee a return of this level in the future, it is in line with historical averages globally, so it certainly could happen.
With that in mind, here are four strategies I would use to try and build a $1 million retirement fund:
Diversify your portfolio
The cornerstone of any successful investment strategy is diversification. Investors should not put all their eggs in one basket. Instead, they should spread their $100,000 across a variety of ASX shares from different sectors to manage risk. Remember, diversification helps protect your portfolio during market downturns while allowing it to participate in upswings.
The power of compounding can't be overstated with long-term investing. And while just leaving your $100,000 original investment to compound will grow into something substantial in time, if you can invest a portion of your income regularly, it will supercharge your returns and get you to your $1 million retirement goal sooner. In addition, by investing regularly, you take advantage of dollar-cost averaging. This means buying more shares when prices are low and fewer when they're high, which ultimately reduces the impact of market volatility on your portfolio.
Focus on quality
Although the ASX has shown a historical average return of 9.6%, it is worth remembering that not all stocks perform the same. Focus on high-quality companies with strong fundamentals, proven track records, and competitive advantages. These are the types of companies that Warren Buffett looks for when he makes investments for Berkshire Hathaway (NYSE: BRK.B).
One often overlooked strategy is reinvesting dividends. When a company pays you dividends, consider using those funds to buy more shares of the same company or other investments in your portfolio. This compounds your returns over time, accelerating the growth of your retirement fund.
Overall, I believe turning $100,000 into a $1 million retirement fund is attainable if you follow the four steps listed above.