NVEI:CC - 2 Stocks to Help Turn $100000 Into $1 Million

2024-01-21 10:00:00 ET

The stock market is a place that has made many investors millionaires. Just a $10,000 investment became $1 million. But this conversion took decades. The stock market works on the logic of compounding, in which the more time you spend in the market, the better returns you get. If you were to convert $100,000 into $1 million in just 10 years, you would need a portfolio with a compounded annual growth rate of 26%.

The returns you need to convert $100,000 into $1 million

To understand the 26% compound annual growth rate (CAGR) concept, look at the table below. You start with a $100,000 investment that gives you a return of $26,000 in the first year, assuming a 26% return on investment. The return is reinvested to earn another 26% return, compounding your portfolio.

No dividend stock can give you a 26% dividend yield. Hence, you have to rely on volatile growth stocks . Every year may not be rosy. There would be highs and lows, but buying a fundamentally strong stock and holding it for a decade can give you a 26% CAGR return.

Even if your portfolio’s average return is less, you can reach the $1 million target by staying invested a little longer. If your portfolio’s average return is 15%, your $100,000 can become $1 million in 17 years.

Remember, Warren Buffett earned 90% of his wealth when he was eligible for government pension. And he started investing at age 12. The time he gave for his wealth to grow has made him a billionaire resilient to economic crisis.

Two stocks that can convert $100,000 into $1 million

But you don’t have to wait till pension to make $1 million. The below two stocks have the potential to generate 26% CAGR in 10 years.

Constellation Software

Constellation Software ( TSX:CSU ) stock is growing at a 10-year CAGR of 30%. This constellation of mission-critical software companies with stable cash flows has surged past its 2021 tech bubble peak and is trading above $3,555. Shelling $3,555 to buy one stock might give you goosebumps. But even at such a high price, the stock keeps growing. It is snowballing returns with every new acquisition.

The company has withstood the pandemic, the 2022 tech bubble burst, and the 2009 Financial crisis and returned to its growth trajectory. The company used the downturn to buy more software companies at a cheap valuation. The stock could continue to grow as long as software technology remains relevant.

Nuvei stock

Nuvei ( TSX:NVEI ) is another growth stock with the potential to generate 26% CAGR. While Constellation has a history of proving its return potential, Nuvei does not. But unlike Constellation, Nuvei looks undervalued. While there is no comparison between the two tech stocks, Nuvei has the advantage of the early growth stage and a stock price 34% below its initial trading price.

Nuvei reported losses in the third quarter as rising interest rates increased the finance cost of its debt. The expected interest rate cuts in 2024 could put Nuvei back to profitability. You need to be patient with this stock. Amid thousands of payment platforms, big companies are signing up with Nuvei for global payments. Nuvei has the potential to allow companies to accept payments worldwide irrespective of customers’ location, device or preferred payment method.

The payments platform model is already a tried and tested business. Nuvei’s management learned from their past mistakes in payment platforms and is using those learnings to make Nuvei a success.

Final thoughts

You could diversify your portfolio between risky and resilient growth stocks. Resilient stocks could reduce the downside risk, whereas risky stocks could boost the upside rally.

The post 2 Stocks to Help Turn $100,000 Into $1 Million appeared first on The Motley Fool Canada .

The Motley Fool has positions in and recommends Nuvei. The Motley Fool recommends Constellation Software. Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

2024