Looking to raise a million in one year for a particular venture or expense?
Want to have an investment portfolio that is worth at least 1 million in the next one year?
If yes, then this article is for you.
Investing isn’t rocket science they say, but many people still fail to wrap their heads around what it takes to make a simple investment.
So, the big question is, how much do you need to invest to make 1 million in the next 12 months?
Do you invest a specific amount periodically for the next 12 months or you save up a lump sum towards making an investment that totals 1 million?
Let’s take a look at some possibilities.
Firstly, in terms of ROI, what can you get for investing your money in one year?
There are several options:
- You could invest in a deposit account at 3.5% p.a
- You could invest in a stock index at 8% p.a
- You could invest in a REIT at 12% p.a
- You could invest in a debt instrument at 15% to 20% p.a
Now, let’s say you get the highest possible ROI, which is 20% p.a from a debt instrument, how would you invest in it to make 1 million per year?
Monthly Investment Plan
You could decide to invest money monthly with a plan to get 1 million at the end of 12 months.
Using the 20% ROI instrument, it will not be possible to get a complete 20% interest on our investment if we invest monthly.
Since the 20% ROI is pegged annually, it would be divided by 12, which gives us a return of roughly 1.6% ROI for our monthly investment.
But to have a clearer view of what ROI is obtainable with our monthly investment, we can use the return rate formula.
Using the return rate formula, a 20% ROI p.a will give us roughly 11.5% prorated ROI for our monthly investment over a 12 months period.
Hence, we’ll need to invest 75k monthly to make 1 million in one year.
To be exact, 75k monthly investment at the end of 1 year will give us a total balance of 1.003 million.
Lump Sum Investment Plan
You could invest a lump sum at a specific interest rate, to make a million within one year.
Unlike the monthly investment, the lump sum investment provides the benefit of investing less over the same period and the interest rate isn’t prorated, which means you get the full ROI without any discounts.
So, if you invest via the debt instrument at 20% p.a, how much lump sum do you need to invest to make 1 million in one year?
Using the return rate formula, you’ll need to invest at least 840k at a 20% interest per annum to make 1 million in one year.
To be exact, 840k lump sum investment at the end of 1 year will give us a total balance of 1.008 million.
Note that we didn’t factor in depreciation due to the inflation rate of the investment currency.
You could use a rough estimate of 3-5% to account for the inflation-adjusted return.
But in general, investment losses can be drastically reduced by investing in a currency with a lower inflation rate.