Nine ways to become a millionaire
Reprinted courtesy of MarketWatch.com
Published: August 17, 2016
To read the original article click here
Your parents and grandparents undoubtedly once thought that if they had a million bucks they would be on top of the world, at least financially. Millionaire status still comes with nice bragging rights.
But because of inflation, being a millionaire isn’t even close to what it used to be. If you had $1 million half a century ago, in 1966, you’d have had the equivalent of about $7.4 million in today’s buying power. But today’s $1 million is worth only about $134,400 in 1966 goods and services.
That’s the bad news. The good news is that achieving millionaire status is considerably easier now than way back then. The topic seems to be on people’s minds these days.
(Here’s a tried-and-true way to make $1 million in the stock market: Start with $2 million. Ouch! I know. Old joke.)
Here then are nine ways that people try (sometimes successfully) to make $1 million.
1. The inheritance. A pretty easy way to wind up with $1 million is to inherit it. If you’re lucky and lazy, this could be the trick for you. The Wall Street Journal cited research indicating that two-thirds of baby boomers will inherit family money, often in their middle years. Many of them will also receive parental gifts while mom and dad are still around. (But see my cautionary note in item no. 7 below.)
If you come into money this way, I hope you’ll treat it as “precious money” and use it as the basis for making sure you’ll have it for life.
2. The match. If you’re lucky and a good saver, and if you work long and hard, you could land a job with a generous employer who will match 100% (or at least the majority) of your 401(k) contributions and give you excellent investment options.
If you make a career of it, you could easily retire with $1 million. Want to increase the likelihood of reaching seven figures? Invest all the company match in equity funds.
3. The start up. There’s some real risk in this one, but you could take a job with a start-up company and become valuable enough that the owner gives you a small stake in the business, perhaps 1% or 2%, in order to keep you from going to the competition. If the company is successful, and if you stick with it, your small ownership could be worth seven figures someday.
4. The help. You could start very early, perhaps with help from your parents or grandparents. If they set aside $1 a day, or $365 a year, for you from the day you’re born until you become a young adult, you’ll have a huge head start. I’ve done the math and discussed some variations on this idea in this article.
Believe it or not, just that $365 a year for 21 years can become more than $2.5 million (at 8%), more than $11 million (at 10%) or $50 million (at 12%).
5. The savings. The “start early” theme is extremely useful if you want to build up your savings. Whether or not you get a parental head start, you can immediately start saving as soon as you have a job.
The math is compelling. If you save $1,000 when you’re 20 and it earns 8% a year, that investment will be worth $31,920 when you’re 65. The same $1,000 invested at the same rate when you’re 25 would grow to $21,724, and so on. If you wait until you’re 40, that $1,000 would grow to only $6,848. The later investments are most certainly worthwhile. But there’s a huge premium for starting early.
Unfortunately, most people don’t fully grasp this until it’s too late for them to take complete advantage of it.
6. The business. You can start a business and make it really valuable. This is far from a guaranteed route. The majority of new businesses do not survive for long; studies show roughly 80% are gone within two years. But some do quite well.
I started a company in 1983 with an investment of $15,000. I put in many years of 50-hour and 60-hour weeks before there was any meaningful profit. But the business provided me with a decent income along the way, and eventually the business (now owned mostly by employees who had been my colleagues) was worth as much as if I had invested $15,000 at a 30% compound return over 30 years.
Lest you think this was easy, I’m sure my “sweat equity” and delayed gratification over the years was worth much more than the $15,000 initial stake.
7. The investment. If you don’t want to go to all that work, and if you are almost impossibly lucky, you could let other people start the company and do all the work.
In the late 1990s I met a woman who had invested $10,000 in Microsoft MSFT, -1.54% stock when it went public in the mid-80s. Why did she do that? She told me she used to drive past the company’s office on her way to work each day, and the Microsoft story fascinated her.
She was worth millions when I met her. But apparently she never contributed to the company’s business. She didn’t even own a computer!
8. The lottery. No list like this would be complete without mentioning the lottery. Spend a few bucks on a ticket and it’s possible (though highly unlikely) you could be a millionaire almost instantly.
However, lots of research shows that new wealth typically vanishes after a few years because of spending and poor investments. The temptations are just too great, the training and preparation just not there.
So if you’re interested in not just acquiring $1 million, but also in keeping it working for you, my advice is to acquire it slowly and deliberately instead of all at once. This leads me to my final point.
9. The boring way. If your goal is $1 million, probably your best bet is to rely on aggressive saving and sensible investing over decades. Throw in lots of patience, the right habits and attitudes, and you’ve got a good shot at making your million.
By the way, most investors aren’t trying to become wealthy. Most just want to accumulate enough so they can enjoy their final years without fear of running out of money. If this describes you, here are the three most important things you should have in your toolkit:
- A commitment to save 10%-20% of your income.
- An investment strategy that gets market rates of return in the equity portion of your portfolio.
- A distribution strategy based on taking out less when the market falls and more when the market rises.
If that sounds boring, too bad. You’ve just read the most surefire way to success.
To use a baseball analogy, a grand slam is spectacular. But winning games are much more often put together one hard-working inning at a time.
I hope you’ll join me for my latest podcast, the first of two, on the 20 most important investment questions.
Richard Buck contributed to this article.
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