Want $1 Million In Retirement? Invest $322,000 In These 3 Stocks and Wait a Decade. – The Motley Fool
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Squeaking an extra 2% out of long-term performance can make a huge difference.
Reaching the millionaire threshold is a goal for many people before they retire. With the market’s long-term performance being around 10% growth per year, it’s a goal that’s fairly obtainable if you start young. If you invest $160 per month from age 25 until age 65 and achieve a 10% annual return, you’ll have just over $1 million. However, that figure rises to an astounding $1.88 million if you can achieve a 12% return.
The alternative is starting with a higher base investment, which isn’t always applicable for some people. With a 12% return, you’d need to start with $322,000 to become a millionaire in a decade.
How can investors squeak out that additional couple of percent? By investing in individual stocks. If you’re looking to accelerate your path to becoming a millionaire, there is no better way. However, individual stocks are more volatile than the market as a whole. So if you’re looking to become a millionaire, here’s a list of three stocks to start you off.
Taiwan Semiconductor (TSM 1.54%) makes some of the world’s most powerful chips. While its 7nm and 5nm (nanometer) technologies ushered in a new age of computing power and efficiency, its 3nm chips are slated to do the same.
These chips are used in practically every device with strong computing power (like a laptop or phone) and won’t be surpassed by any company in the near future due to the huge barriers to entry. With the company rolling out a new generation of chips every couple of years, Taiwan Semiconductor can grow its revenue steadily, which is a great reason to own the stock going forward.
Currently, 5nm and 7nm chips make up 51% of TSMC’s revenue, but when the 3nm chip starts to add to its finances, the company should see its revenue rise significantly.
Despite this transition, the stock trades at attractive levels.
TSM PE Ratio data by YCharts
With both its price-to-sales (P/S) and price-to-earnings (P/E) ratios near multi-year lows, Taiwan Semiconductor is a great stock to add to your portfolio if you’re looking for outsized returns.
Cybersecurity is an important business expense in today’s digital society. The threat of attacks has never been higher, so businesses must rely on platforms with the best protection. CrowdStrike (CRWD 0.24%) is a leader in endpoint protection, which protects devices that access a company’s network, like a laptop or a phone, from breaches.
CrowdStrike also has more than 20 other products customers can add to the base solution, making it a go-to choice for many clients because they can get an all-encompassing solution from one source. In fact, 62% of CrowdStrike’s clients use five or more products, while 23% deploy seven or more.
It’s also growing rapidly, with annual recurring revenue rising at a 42% pace during the first quarter of fiscal year 2024 (ending April 30). It also generates an immense amount of free cash flow (FCF), converting 33% of revenue into FCF during Q1.
CrowdStrike just posted its first quarterly profit as a public company, so valuing the stock based solely on earnings isn’t a wise move. If we use FCF, the stock’s valuation has become even more attractive.
CRWD Price to Free Cash Flow data by YCharts
If you project CrowdStrike’s 33% FCF margin out to full-year results, the stock trades at 36 times full-year FCF estimates, which is a fairly cheap price to pay for a company growing as quickly as CrowdStrike.
With cybersecurity deployment in the early innings, CrowdStrike is an excellent growth candidate to add to your portfolio if you want to achieve millionaire status.
Alphabet (GOOG -0.28%) (GOOGL -0.27%) is already one of the world’s largest companies, but it still has the ability to deliver market-crushing returns.
Its product pipeline is impressive. It has a tight grip on the search engine advertising industry, a growing cloud computing business, and several artificial intelligence (AI) toolkits and products it has been working on for years. Alphabet is well positioned to maintain its status as one of the top stocks in the market and should see more growth return to the company as the advertising industry recovers with the economy.
The stock is a bit expensive from its historical P/E ratio, but Alphabet doesn’t have the margins it used to, thanks to weakness in the advertising market plus its heavy AI spending.
GOOGL PE Ratio data by YCharts
Once this margin improves, Alphabet will see its profits rise quickly, making the stock look cheap. That will be a large growth catalyst for Alphabet and help the stock beat the market over the long haul.
While these three stocks are a good starting point, a well-diversified portfolio is made up of at least 25 stocks. So going all-in on this trio isn’t a wise idea, as one may not work out. By spreading investments across many different stocks, investors can position themselves well to achieve millionaire status.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet, CrowdStrike, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, CrowdStrike, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
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