How to Turn $1,000 into $1 Million: A Top Wealth Advisor's Strategy

According to Andrea Zoeller, wealth manager and partner at Merit Financial Advisors, turning $1,000 into $1 million is achievable through a combination of time, smart investing, and patience. In a recent interview with Bankrate, Zoeller shared her top strategies for growing your nest egg.

1. Let time work its magic

Even more than picking the right investment, time is the most important element in turning small money into big money. A few extra years of compounding your money can really have a huge impact on the total snowball you can roll up.

"Start investing as early as you can," says Zoeller. "There are several studies that show an investor that starts early and saves often can end with a portfolio value larger than one who starts later in life."

How powerful is starting now? Let's use a simplified example, where you invest $1,000 each year to show the value of starting early.

You start investing at age 22 and invest $1,000 annually with 10 percent annual returns. If you retire at age 62, you'll have saved $40,000 over those 40 years, but that money would have compounded to more than $440,000, assuming no taxes.

You start investing at age 32 and invest $1,000 annually with 10 percent annual returns. If you retire at age 62, you'll have saved $30,000 over those 30 years, but that money would have compounded to more than $160,000, assuming no taxes.

"The money has been invested longer when someone starts earlier in life and will have more time to generate compounding interest in the lifetime compared to someone who didn’t start until later in life," says Zoeller.



The tax laws favor investments, too. You won't pay any taxes on your capital gains until you sell the investment, meaning you can compound your wealth for decades without the drag of taxes. Does 10 percent sound like too high of a return? In fact, every investor can purchase an investment that’s returned about 10 percent on average over time.

2. Pick a strong investment

You might think that you need to trade in and out of the market with the very best investments to build a million dollars. Sure, it’s better to have the best investment, but you’ll do just fine over time with a consistent performer that delivers solid returns in most years.

The best solution? Invest in a low-cost index fund, says Zoeller. A stock index fund provides the weighted average return of all its stock holdings. A fund based on the S&P 500 index, which includes hundreds of America’s top companies, has returned about 10 percent per year on average over long periods. These kinds of funds are accessible to anyone with a brokerage account, and you don’t need specialized expertise to purchase them.

Low-cost funds keep more money in your pocket and working for you, and you have many choices among them. The best S&P 500 index funds charge low fees — typically less than $10 annually for every $10,000 you have invested, and some even just $3 — so you invest in a solid index fund and enjoy strong returns over time at a low cost.



3. Hold on over time

It can be easy to overlook, but you are your own worst enemy when it comes to investing. That’s because you’ll sabotage your progress by doing things that you think are safe or smart. For example, it’s easy to sell when the market is rocky and the economy looks rough.

"Time in the market is more important than timing the market," says Zoeller. "Missing out on the best positive days in the market because you are trying to time the market has shown to erode investor returns over time even when staying invested during down markets."

So if you’re looking to achieve the returns of the index funds you’re invested in, you’ll want to stay invested. Plus, staying invested allows you to avoid paying capital gains taxes on your profits. If you sell a winner, you’re guaranteeing that your bankroll will decline in value.

"Be patient," says Zoeller. "Building wealth is a marathon, not a race. It takes a lot of time and consistency."

While our example uses $1,000 as a starting point, if you can add money to your portfolio over time — especially when the market falls — you can continue to earn attractive profits.

Other tips for building wealth

So that’s how you can turn $1,000 into a million — give yourself plenty of time, buy a strong index fund and then hold on. Here are some other tips for building wealth.

Avoid selling after the market has gone down. "This is the No. 1 mistake that will erode your returns over time because there is no telling when you will get back into the market," says Zoeller. "Oftentimes, by the time you get back in the market, it is after the recovery has already started."

Invest in yourself. "The best return on your money comes from paying off debt," says Zoeller. "If you have high-interest loans like credit cards, pay those off first. And if you're worth at least $1 million, neither a car loan nor student loan debt makes any sense."

Build a fully-funded emergency fund. It may seem ridiculous to talk about an emergency fund if you have $1 million, but all emergency funds are relative. And you'll need one regardless of your wealth level. You should have between three and six months' living expenses in your emergency fund, which will help protect you from unexpected emergency expenses and short-term income disruptions. An emergency fund acts as an insulator between you and your investments. It's recommended to keep a large portion of your emergency funds in a high-yield savings account.

Max out your retirement plan. Without even getting into how you'll invest the money, you should certainly max out any retirement plans you participate in. If that's a 401(k) plan, contribute the maximum of $19,500 (or $26,000 if you're at least 50 years old). If it's an IRA, contribute the maximum $6,000 per year (or $7,000 if you're age 50 or older).

In conclusion, turning $1,000 into $1 million is achievable with the right strategy, time, and patience. By following the advice of top wealth advisors like Andrea Zoeller, you can grow your nest egg and secure your financial future.