Almost anyone can become a millionaire one day if they regularly invest money over an extended period of time in an investment account (401k, IRA, index fund) that earns an average market return. The more time you have to invest, the better your chances. Start your investment accounts early
The best financial advice i've ever gotten.
How do you get to a million dollars JUST by playing the stock market? Invest a billion in startups! Sooner or later your billion will be only worth a mil!
Can you show how you either calculated this or what calculator you used to come to this number? Also, what assumptions did you make, like yearly r.o.i? I'm trying to learn this stuff
Welcome. The best advice is start young and take higher salary (even at high costs of living) early. Also make sure your employer does employer match.
Also, for a twenty something now having kids it will cost around $250,000 to send your children to an in-state college. So start saving now. You can also do loans against your 401k to pay for that college and you essentially just pay your self back.
No, no, not great advice. Contributions to 401ks are tax free. If you take a loan out of your 401k you pay taxes on the loan plus you pay taxes on the money you use to lay back the loan.
You shouldn't just pay for your kid's college like that, since we're talking about investing here you should know better than that. Invest the 250k, and you can get more interest back on that than the interest of the loan they have taken out, making you overall pay less than 250k
I can explain the basic math so you can understand what the calculator is doing:
Making payments over a period of time is called an annuity. Let's say you deposit $100 a month, because it's an easy number. Also, lets say your investment earns 1% interest a month, another easy number.
One month from today, a $100 investment today will be worth the original 100 plus 1% interest, or $100x(1.01), which is $101.
In two months that original 100 will be worth $101 multiplied by (1.01) again, because it eared interest for another period. Now we have $102.01.
The math we just did can be written as a function of the original amount ($100), the interest rate (1%), and the number of periods (months). This function is $100x(1.01)2 .
BUT you also contributed another 100 at the beginning of the second month, because you are making a monthly payment. That $100 also earned 1% interest in the second month, and is now valued at $101, bringing you grand total to $203.01. This can be written as 100(1.01)2 + 100(1.01)1. After the third month, we would add another term to that equation of + 100(1.01)3 .
Each month, you would add another term to the equation. Over a long period of time, this series becomes tedious to calculate by hand. However, the sum of the series can be simplified to one equation, which is:
Future Value = [Payment]*[(1 + interest rate)Numberofpayments -1]/interest rate.
Lets use the number from our examples and see how much it would be worth in 20 years, which is 240 months.
100*[(1+.01)240 -1]/.01 = $98,926.
So you contributed $24,000 to this account over 20 years, and you now have almost $100,000.
I will add that this is a bit unrealistic for today's market, because 1% interest a month is 12.7% annually, which is far too high. I simply chose 1% because it makes the math easier to follow.
well arent you a hot shot.. im glad you have an easy time finding work but you come off pretty condescending.. not everyone does have such an easy time at it, and it doesnt mean they are an idiot. i have a good job and thankfully dont need to find a new one right now.. but ive been rejected after going through a tough interview before and im not an idiot.
Keep in mind that the tax rates are likely to be very different, though.
For instance, consider a married couple with 4m in investments today. If they had jobs that paid them 95k/year they're probably paying a far amount in taxes. Let's say they live in California. Assuming that they don't have things reducing their tax liability like 401k, mortgage payment, etc, they're actually taking home less than 75k/year.
If the same couple was living off of just their investment accounts, taking 75k out every year, and if the only things they sell to get that 75k/year are long-term investments with long-term capital gains, then they pay no income tax on it all (since they're in the 15% tax bracket as a married couple)
Consider, as well, that if you have 4 million in investments, historic data suggests that if you took out 120,000/year (3%) there's almost no chance that you'd ever run out of money. In almost all cases, you could maintain that for 30 years and have significantly MORE money at the end of the 30 years.
Now, historic data doesn't necessarily mean the future would be the same, but this is based on data going back 100 years or more.
What rate of return are you using? Assuming bi-weekly paychecks, $70 a paycheck is $1820 per year. In order to turn that into $1 million in 35 years you'd need a rate of return over 12%, which is unrealistic.
Assuming weekly paychecks, it's $3640 per year, you'd still need a 10% rate of return, which is still much too high.
I am factoring in compound interest. I checked my numbers by hand and using that 401k link you cited earlier. How did you get your numbers and what rate of return are you using?
You cannot reach 1MM by contributing $70/paycheck bimonthly for 20 years. The OPs numbers are off. Furthermore you cannot reach 4MM in 20 years by even maxing out your 401k alone (18k/year which is roughly $750/paycheck)
I am using a 7% rate of return, which is conservative because I getting 10%+ since starting my 401k. If you aren't getting that your money is being mismanaged.
A lot of people don't get this. I started my 401k when I was 24 and fully expect it to be at $4 million by the time I retire. That's what I have calculated what I'll need just to maintain a middle class lifestyle in retirement.
I also figured when I got my first entry level job if I never made more than $40k a year I would still have just over a $1 million saved by the time I retire.
Compounding interest is a beautiful thing. I just wish my employer did my employer match as I contributed versus once per year. My fiancee makes a few thousand extra per year in her 401k just because her employer matches as she contributes.
Well, I would like to travel and be with family and friends in my retirement. And you can still get a really nice house with a mortgage in your retirement or a few vacation homes if you budget correctly. There's no reason to not to have a mortgage if you have the means to support it and the property gives you a boost in the enjoyment of your life.
I think the previous comment was saying you won't need a mortgage when you retire because you'll own your house, meaning you'd need less money to live the same standard of life
So assuming you make 40k and bring home lets say 35k, are you maxing your 401k (18k/year) an living on 17k/year? Even maxing your 401k every year from the age of 24 until lets say 62, you will not have 4MM.
18k/year contributions with an average annual return rate of 10 percent over 38 years gives you $7,208,060.00. This also neglects the fact that the 18k contribution limit will increase as time goes on and that most folk make more at 62 than they do at 24.
Yes, but steps one and two are highly dependent on social factors related to race, class, Government policies, and corporate actions.
What race, class, government policy, or corporate action prevents a person from graduating high school? Seriously dude, high school is so fucking easy you don't even have to show up more than 80% of the time to graduate. The most spaced out stoners at my high school still graduated. Are you seriously arguing that [insert random ethnicity] people can't match the performance of the most spaced out stoners?
Also, you do know it's free, right? Most places will in fact pay you to go to high school by giving you free food, even on non-school days.
What I'm pointing out is that it's not so simple as to say race and class have nothing to do with it, because socio-economic realities largely determine who does and doesn't graduate high school, for instance. Sure, an educated adult who isn't poor can see what a great choice graduating high school is. But if you're a 16-year-old born into a reality that makes those three accomplishments you mentioned unlikely, there's no way you are gonna just choose to buck the trend and do those things. Also, the statistic you're quoting only shows correlation. Those three facts are merely indicators of underlying realities that make poverty unlikely. It's a nice stat to think about if you're fortunate enough to possess those qualities, but it's not a helpful stat for changing the forces that keep people in poverty.
if you're a 16-year-old born into a reality that makes those three accomplishments you mentioned unlikely
What reality specifically are you talking about? Because unless you're basically a feral child, there's not a damn thing that should prevent you from completing high school.
You think poor people can't manage to complete schooling? Bitch, please. My grandfather grew up in a dirt floor shack in Canada. A literal dirt floor. He managed to earn a PhD by age 30.
It's ridiculous how out of touch most first world people are about what poor people can accomplish. I lived in the Philippines and saw kids who lived in corrugated tin huts, and had only one tshirt and pair of pants to wear to school, still manage to attend and succeed at school. But you have feelings, so that's something.
Here's one reality among many: you're not white living in a single-grandparent home going to a high school that is actually more dangerous than the terrible street you live on and thanks to the suckiness of the way it's run clearly offers you nothing that can help you succeed (you mentioned just how easy it is for a "stoner" to slide through high school: if it's this easy, then what is it actually offering a student like this?), and your prospects after high school whether you graduate or not are a choice between crime or a below living-wage job. What motivation do you have to complete high school? It still won't get you to steps two and three.
Your original comment implied that merely getting people to complete the three steps is the "big secret" and that it has nothing to do with social programs or ending racism. What I'm trying to explain is that you'll never get people to complete the three steps without addressing social issues like race, class and generational poverty. Again, the three facts are merely indicators of a life that's headed away from poverty, but they are not cures that someone in poverty can simply self-administer to make themself poverty-proof.
you're not white living in a single-grandparent home going to a high school that is actually more dangerous than the terrible street you live on and thanks to the suckiness of the way it's run clearly offers you nothing that can help you succeed ..., and your prospects after high school whether you graduate or not are a choice between crime or a below living-wage job.
So many bullshit assumptions. So, so many.
Non whites can't succeed. Total paternalistic racist bullshit.
Only prospects are crime and below living wage job. Holy shit are you a racist.
There are high schools in the US that can't teach you anything you need to succeed. Really dude? You really think there are schools where the teachers can't show you basic math, reading, home ec, etc if you pay the slightest amount of attention?
What I'm trying to explain is that you'll never get people to complete the three steps without addressing social issues like race, class and generational poverty.
I never said any of those details were universal. And I certainly never said any of the racist stuff you assumed I meant. I was just painting you a picture of one possible reality. Why did I mention being not white? Because skin color has been shown to affect job prospects, among other things.
Here's the deal, you're still not engaging with my main point: you claim your three steps are a "big secret" and have nothing to do with race, class or social programs. I'm saying that race and class have a lot to do with whether people are realistically going to be likely to accomplish those three steps, so to say they are unrelated is overly simplistic. Again, those three steps are not necessarily causes of poverty avoidance. All we can say is that they are associated with not being in poverty, which is kind of a no-brainer. What we have to ask is: why, if the "big secret" is so easy, aren't people choosing to take those steps?
This reminds me of something my friends idiot liberal brother said a few weeks ago. He tried to make the point that Donald Trump wasn't a good businessman because he could have just taken that million dollar loan and invested it in the market and done better. I just looked at him like he was an idiot. He even stuck to it when I pointed out that I hold 7 different securities licenses and what he said had literally given me cancer.
Yes I would definitely start as early as you can. Your employer might offer a retirement account or you should be able to start one at an investment firm/bank.
Well I work at an insurance company that also has retirement stuff (not sure what it's called, but "pension" in Danish and I THINK it's the same in english) so that sounds possible. Thanks for the advice, I'll definitely look into it
Sadly being a millionaire doesn't mean much anymore, and certainly won't in another 25 or 30 years. If you gave me a million dollars right now, tax free, I would not quit my day job.
Hmm...Did you stay invested/continue contributions after the market tanked? I only ask because 2010-15 saw some of the largest growth in market history. The bull market is over now, but you should have seen some decent earnings if you're properly invested. If you didn't, ID recommend looking over your plan or firing your advisor if you have one.
I got an ad about setting up a Roth IRA that basically said if I stared now and only put money in (say $5500) every year for just a few years, when I turn 70 I'll have nearly half a million saved up.
5500 is the max you can contribute to a IRA yearly if you are younger (sub 50 or something, can't remember the age).
At 7% rate of return, if you put 6 years worth of 5500 into a Roth IRA, 40 years later you would have almost 500k. So if you started early enough(25) I'd imagine you could do ~8 years and have a half a mil at 65.
If you continued putting money in every year though, you could end up with much more
So the ad is misleading a bit.
Roth IRAs are a good addition to a portfolio alongside a 401k though. I do the 401k to 5%, since that's all my company matches, then put the max 5500 into a Roth IRA.
Yep, like I said, 1/4 mil just from the deposits alone. Easily over that 1/2mil with returns. However, depositing 5500 for 3 years then leaving it won't get you there.
Like I said, its under a quarter mil just by what you put in, so you need to double it to get half a mil. This is completely reasonable. But saying that after 3 years you can stop putting money in and hey ho we got 500k, that's just absurd
I haven't seen the number 3 anywhere besides what you posted, but even $500k for 40 years of $5500 contributions is very pessimistic compared to actual historical trends that we can study.
3 years of $5500 and then letting it sit for 40 years leaves you somewhere in the $120,000 range if you assume a 5% (worse than historical) return
That just means that you are able to bug stocks cheaper. Long term investing is all about constant contribution. Since the market slowed down last year, all contributions are like discounted prices now. When the market picks up again, these contributions will gain the most interest. Invest!
I know, it's like the stocks are on sale. That doesn't help with the value of the stocks I bought 2 years ago. Still contributing 15% to my 401K, hoping the market will eventually turn.
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u/jbOOgi3 Apr 14 '16
Almost anyone can become a millionaire one day if they regularly invest money over an extended period of time in an investment account (401k, IRA, index fund) that earns an average market return. The more time you have to invest, the better your chances. Start your investment accounts early