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Guide

How to Turn $5 Into $50,000 for Retirement

A golden egg in a nest

Image source: Getty Images.

I know the title may sound like clickbait nonsense. But I want to reassure Motley Fool readers that it’s entirely possible to turn just $5 into $50,000 before you retire. And today I’m going to outline exactly how.

Why $5?

First, let me explain why I picked $5. Anyone can put aside a $5 investment these days, even when the market is down and everyone is dropping by. The chances are good one something you could shave off your budget to put that $5 aside.

Now, I typically recommend that investors set aside 5% to 10% of their salary for investing. But right now, that just doesn’t work for everyone. So if you want to start during this extremely low stock price period, then starting with just $5 is absolutely better than zero.

The next step is to do this for every paycheck. So that means ideally putting aside $5 every two weeks. It all adds up! At the end of the year you have $115 ready to be invested. And if you keep going like this, then Yes, really adds up. You can always deposit more, but just $115 will help you reach those retirement goals.

Pick a great stock

This is the harder part. If you want to invest for retirement, you need to put that $115 to good use. That means finding a safe stock that pays dividends. Dividends are ideal when you have a small amount to invest. You can use the dividends to keep reinvesting in your strong stock picks.

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While oil and gas companies have historically been good investments, if you’re young and looking decades out, I’d pick another energy stock outside of this sector. Even the Organization of the Petroleum Exporting Countries (OPEC+) has stated that oil and gas will decline significantly by 2040.

Instead, I would look to renewable energy companies Brookfield Renewable Partners LP (TSX:BEP.UN)(NYSE:BEP) is a great option. It owns virtually every type of renewable energy facility and has assets around the world. It has also expanded its deals with European countries looking to ditch their dependency on Russian oil.

It all adds up

Let’s see how long it would take to turn $115 a year and $5 every two weeks into $50,000 for retirement. Meanwhile, invest in Brookfield stock while reinvesting dividends. Your gains will certainly start small since you only get around $4.30 in dividends in the first year.

However, Brookfield is a growing stock with tremendous potential. Over the past two decades, the stock has grown at a compound annual growth rate (CAGR) of 15.6%! During that time, the dividend has also increased by a CAGR of 5%.

All told, it would take you 28 years to have $57,560 in your portfolio through this investment method. All based on historical performance and by only setting aside $5 per paycheck!

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