All the way to the Millionaire
Post 1 of 4
Americans are obsessed with becoming millionaires. Do a search on Amazon.com and you will find over 1,370 books with "Millionaire" in the title. Take a look at some of the most popular television shows over the past few years: Survivor (competing for $1 million), Who Wants to Be a Millionaire, Joe Millionaire and Deal or No Deal ($1 million prize). How many lotteries have a one million dollar prize?
The question is, how hard is it to become a millionaire through saving and investing?
What It Takes To Become a Millionaire
It may not be as hard as you think. For example, a 30-year old making $50,000 a year (plus 3% raises each year), saving 10% of their income with a 10% return each year could expect to hit millionaire status at age 59. If they work until the traditional retirement age of 65, they will have over two million dollars saved up. 10% may sound like an aggressive amount of saving, but it could be a combination of employee contributions to a 401k plus company match.
What Role Does Income Play? Surprisingly, income is not as big a factor as you might think. Using the same assumptions as above but making $100k a year, the person would become a millionaire at age 53 instead of 59. How could that be? The main factor here is what Einstein called the "8th wonder of the world": the power of compounding interest.
Playing Catch-up? Can't Save That Much?
If you are unable to save that much a year, or you are getting a late start, there is still hope. If you started at age 30, but could only save 5%, you would still become a millionaire by retirement at age 65. If you are playing catch-up and started investing at age 40, you would need to save about 11% a year to become a millionaire by age 65, but at age 50 you would have to save a nearly impossible 30% a year and your time frame would be so short that market volatility would play a bigger role in determining if you could retire or not.
Is One Million Dollars Really That Much These days?
Not really. Once you take inflation into account, being a millionaire today isn't as impressive as it used to be. For example, if someone was a millionaire in 1980, they would have to have about $1.9 million dollars in 2003 to match the wealth they had in 1980.
Is One Million Dollars Enough to Retire On?
It is. If you had one million dollars today and put the money in something safe that earns around 6% a year, you could afford to take out $60,000 a year for the next 49 years. If you wanted to be a bit more aggressive with your withdrawals and live up your retirement years, you could take out $100,000 a year for 14 years. For simplicity, these examples don't includes taxes which would decrease your lasting power, though things like social security and higher returns would increase your lasting power.
Do You Have What it Takes to Become a Millionaire?
As you have learned the most important factor to becoming a millionaire is to save early and rely on compounding interest. You can easily have control over how much you save, but you can't do much about performance - performance isn't reliable. You could try to make 15% a year, but may end up losing 10% a year doing so. It is better to rely on a properly diversified mutual fund portfolio earning around 10-13% a year, then to gamble and never retire.
Related Ways to the Millionaire:
I'm about to tell you about the best investment you'll ever make. It's not futures or options. It isn't stock, real estate or precious metals. It is something almost everyone has access to and is the ultimate "no brainer" investment.
YOUR 401K!! More specifically, if you employer offers matching on your 401k contributions - you can't lose!
Don't believe me? Let me explain why.
When an empoyer offers 401k matching, they are guaranteeing that they will match a certain percentage of your contributions. A common match is 50 cents on the dollar. That means if you put one dollar into your 401k plan, they will match your contribution by putting 50 cents in. You just made 50% on your investment!
Now you see why it is important to maximize your contributions. Perhaps one of the biggest mistakes investors make is to pull back on their 401k contributions because the market or their portfolio is doing poorly. However, every time the investor puts money into their 401k, they are making a guaranteed profit up front. Besides, when the market goes down, most investors benefit (see " Down Markets Good for Many Investors").
I must disclose a one important detail about this wonderful investment: Some companies have vesting schedules for employer contributions. This means you may have to work a certain amount of time to keep the money the company contributes (An example would be after 1 year, you get 25%, after 2 you get 50% and so on). The good news is that you always get to keep your contributions.
My recommendation: maximize your contributions to the point where you receive all the company matching. For example, an employer might match $0.50 on the dollar up to 8%. My recommendation is that you at least contribute 8% to take adantage of the extra 4% of your salary the company is willing to chip in. If you have the option to contribute beyond the 8% without matching, it may make sense depending on your financial situation, but my main point is that you need to at least get up to the 8%.
-------------------------------
Being a collection of many stocks, you may have thought that picking a mutual fund might be easy. Not necessarily... there are over 10,000 mutual funds to choose from. It is easier to think of mutual funds in categories.
I won't discuss every category because this article is designed for the beginning investor (read other articles on this site for more in-depth information on funds).
Money Market Funds
These funds are a great place to park your money. Whether you're storing money for emergencies, saving for the short-term, or looking for a place to store cash from the sale of an investment, money market funds are a safe place to invest. These funds invest in short-term debt instruments and typically produce interest rates that double what a bank can offer in a checking account or savings account and rival the returns of a CD (Certificate of Deposit). The beauty of money market funds is that you can often write checks out of your account and they provide a high amount of liquidity (ability to cash out quickly) not found in CD's. These funds are not FDIC insured, but in the history of money market funds no money market fund has ever folded, yet many banks have failed and many investors with over $100,000 lost out.
Bond Funds
Bond funds carry more risk than money market funds are often used to produce income (useful in retirement) or to help stabilize a portfolio (diversification). The primary types of bond funds are:
* Municipal Bond Funds -uses tax-exempt bonds issued by state and local governments (these funds are non-taxable).
* Corporate Bond Funds -uses the debt obligations of U.S. corporations.
* Mortgage-Backed Securities Funds - uses securities representing residential mortgages.
* U.S. Government Bond Funds -uses U.S. treasury or government securities.
Another way bond funds are often classified is by maturity, or the date the borrower (whether it be the bank, the government, a corporation or an individual) must pay back the money borrowed. Using this classification bonds are often called short-term bonds, intermediate-term bonds, or long-term bonds.
Stock Funds
Stocks funds are considered riskier than bond funds (although certain bond funds can be very risky) and are used for growing your money. Money market funds and bond funds typically provide returns just a percentage or two above inflation, but stock funds should do much better over long periods of time.
--------------------------------------------------------
Money market funds have been around for over 35 years and are a very popular place for investors to park their money. How popular? As of Feb. 21, 2007, 2.3 trillion dollars worth of popularity!
Money market funds are a type of mutual fund that invests in short-term (less than a year) debt securities of agencies of the U.S. Government, banks and corporations and U.S. Treasury Bills. They are fixed at $1 per share and only the yield fluctuates.
Banks prefer you never hear about the 1000-plus money market funds available to investors. These funds offer advantages that savings accounts, checking accounts and CD's can't beat, including:
High Liquidity
Money market funds are very liquid, meaning you can take money out of them on short notice. There is no penalty for taking money out of your money market fund, unlike Certificates of Deposit (CD's) that impose large fees for withdrawing your money. You can also write checks from your money market account (typically three a month).
Low Risk
Money market funds are not FDIC insured, but they are still very secure because they are holding very safe investments like t-bills. Government debt securities are considered very safe because the government has the ability to raise taxes to meet its obligations. It is virtually impossible to lose your principle in money market funds. To top it off, most mutual fund companies carry some sort of insurance to cover your assets.
Competitive Yields
Your checking and savings accounts will have a tough time beating the yield of a money market fund. Money market funds return an average of 4 to 6 percent a year, which rivals the return of CD's. The interest is calculated daily, but only paid out at the end of the month unless you sell the fund, then it is paid at that time.
Money Market Funds Widely Used
As mentioned earlier, about 2.36 trillion dollars of investors' money was in money market funds in 2007. If you sell a stock or a mutual fund, your broker or fund company will typically move your proceeds into a money market account so you can collect interest. Also, when you open an account with most brokerage firms or fund companies, your money is typically put into a money market account until you are ready to purchase bonds or equities.
Money market funds are clearly a smart place to hold your money. If you are between investments, saving for a house, saving for a vehicle purchase, or just looking for a safe place to put money, I urge you to put the money in a money market fund. There is no reason to hold large amounts of money at the bank.
The question is, how hard is it to become a millionaire through saving and investing?
What It Takes To Become a Millionaire
It may not be as hard as you think. For example, a 30-year old making $50,000 a year (plus 3% raises each year), saving 10% of their income with a 10% return each year could expect to hit millionaire status at age 59. If they work until the traditional retirement age of 65, they will have over two million dollars saved up. 10% may sound like an aggressive amount of saving, but it could be a combination of employee contributions to a 401k plus company match.
What Role Does Income Play? Surprisingly, income is not as big a factor as you might think. Using the same assumptions as above but making $100k a year, the person would become a millionaire at age 53 instead of 59. How could that be? The main factor here is what Einstein called the "8th wonder of the world": the power of compounding interest.
Playing Catch-up? Can't Save That Much?
If you are unable to save that much a year, or you are getting a late start, there is still hope. If you started at age 30, but could only save 5%, you would still become a millionaire by retirement at age 65. If you are playing catch-up and started investing at age 40, you would need to save about 11% a year to become a millionaire by age 65, but at age 50 you would have to save a nearly impossible 30% a year and your time frame would be so short that market volatility would play a bigger role in determining if you could retire or not.
Is One Million Dollars Really That Much These days?
Not really. Once you take inflation into account, being a millionaire today isn't as impressive as it used to be. For example, if someone was a millionaire in 1980, they would have to have about $1.9 million dollars in 2003 to match the wealth they had in 1980.
Is One Million Dollars Enough to Retire On?
It is. If you had one million dollars today and put the money in something safe that earns around 6% a year, you could afford to take out $60,000 a year for the next 49 years. If you wanted to be a bit more aggressive with your withdrawals and live up your retirement years, you could take out $100,000 a year for 14 years. For simplicity, these examples don't includes taxes which would decrease your lasting power, though things like social security and higher returns would increase your lasting power.
Do You Have What it Takes to Become a Millionaire?
As you have learned the most important factor to becoming a millionaire is to save early and rely on compounding interest. You can easily have control over how much you save, but you can't do much about performance - performance isn't reliable. You could try to make 15% a year, but may end up losing 10% a year doing so. It is better to rely on a properly diversified mutual fund portfolio earning around 10-13% a year, then to gamble and never retire.
Related Ways to the Millionaire:
I'm about to tell you about the best investment you'll ever make. It's not futures or options. It isn't stock, real estate or precious metals. It is something almost everyone has access to and is the ultimate "no brainer" investment.
YOUR 401K!! More specifically, if you employer offers matching on your 401k contributions - you can't lose!
Don't believe me? Let me explain why.
When an empoyer offers 401k matching, they are guaranteeing that they will match a certain percentage of your contributions. A common match is 50 cents on the dollar. That means if you put one dollar into your 401k plan, they will match your contribution by putting 50 cents in. You just made 50% on your investment!
Now you see why it is important to maximize your contributions. Perhaps one of the biggest mistakes investors make is to pull back on their 401k contributions because the market or their portfolio is doing poorly. However, every time the investor puts money into their 401k, they are making a guaranteed profit up front. Besides, when the market goes down, most investors benefit (see " Down Markets Good for Many Investors").
I must disclose a one important detail about this wonderful investment: Some companies have vesting schedules for employer contributions. This means you may have to work a certain amount of time to keep the money the company contributes (An example would be after 1 year, you get 25%, after 2 you get 50% and so on). The good news is that you always get to keep your contributions.
My recommendation: maximize your contributions to the point where you receive all the company matching. For example, an employer might match $0.50 on the dollar up to 8%. My recommendation is that you at least contribute 8% to take adantage of the extra 4% of your salary the company is willing to chip in. If you have the option to contribute beyond the 8% without matching, it may make sense depending on your financial situation, but my main point is that you need to at least get up to the 8%.
-------------------------------
Being a collection of many stocks, you may have thought that picking a mutual fund might be easy. Not necessarily... there are over 10,000 mutual funds to choose from. It is easier to think of mutual funds in categories.
I won't discuss every category because this article is designed for the beginning investor (read other articles on this site for more in-depth information on funds).
Money Market Funds
These funds are a great place to park your money. Whether you're storing money for emergencies, saving for the short-term, or looking for a place to store cash from the sale of an investment, money market funds are a safe place to invest. These funds invest in short-term debt instruments and typically produce interest rates that double what a bank can offer in a checking account or savings account and rival the returns of a CD (Certificate of Deposit). The beauty of money market funds is that you can often write checks out of your account and they provide a high amount of liquidity (ability to cash out quickly) not found in CD's. These funds are not FDIC insured, but in the history of money market funds no money market fund has ever folded, yet many banks have failed and many investors with over $100,000 lost out.
Bond Funds
Bond funds carry more risk than money market funds are often used to produce income (useful in retirement) or to help stabilize a portfolio (diversification). The primary types of bond funds are:
* Municipal Bond Funds -uses tax-exempt bonds issued by state and local governments (these funds are non-taxable).
* Corporate Bond Funds -uses the debt obligations of U.S. corporations.
* Mortgage-Backed Securities Funds - uses securities representing residential mortgages.
* U.S. Government Bond Funds -uses U.S. treasury or government securities.
Another way bond funds are often classified is by maturity, or the date the borrower (whether it be the bank, the government, a corporation or an individual) must pay back the money borrowed. Using this classification bonds are often called short-term bonds, intermediate-term bonds, or long-term bonds.
Stock Funds
Stocks funds are considered riskier than bond funds (although certain bond funds can be very risky) and are used for growing your money. Money market funds and bond funds typically provide returns just a percentage or two above inflation, but stock funds should do much better over long periods of time.
--------------------------------------------------------
Money market funds have been around for over 35 years and are a very popular place for investors to park their money. How popular? As of Feb. 21, 2007, 2.3 trillion dollars worth of popularity!
Money market funds are a type of mutual fund that invests in short-term (less than a year) debt securities of agencies of the U.S. Government, banks and corporations and U.S. Treasury Bills. They are fixed at $1 per share and only the yield fluctuates.
Banks prefer you never hear about the 1000-plus money market funds available to investors. These funds offer advantages that savings accounts, checking accounts and CD's can't beat, including:
High Liquidity
Money market funds are very liquid, meaning you can take money out of them on short notice. There is no penalty for taking money out of your money market fund, unlike Certificates of Deposit (CD's) that impose large fees for withdrawing your money. You can also write checks from your money market account (typically three a month).
Low Risk
Money market funds are not FDIC insured, but they are still very secure because they are holding very safe investments like t-bills. Government debt securities are considered very safe because the government has the ability to raise taxes to meet its obligations. It is virtually impossible to lose your principle in money market funds. To top it off, most mutual fund companies carry some sort of insurance to cover your assets.
Competitive Yields
Your checking and savings accounts will have a tough time beating the yield of a money market fund. Money market funds return an average of 4 to 6 percent a year, which rivals the return of CD's. The interest is calculated daily, but only paid out at the end of the month unless you sell the fund, then it is paid at that time.
Money Market Funds Widely Used
As mentioned earlier, about 2.36 trillion dollars of investors' money was in money market funds in 2007. If you sell a stock or a mutual fund, your broker or fund company will typically move your proceeds into a money market account so you can collect interest. Also, when you open an account with most brokerage firms or fund companies, your money is typically put into a money market account until you are ready to purchase bonds or equities.
Money market funds are clearly a smart place to hold your money. If you are between investments, saving for a house, saving for a vehicle purchase, or just looking for a safe place to put money, I urge you to put the money in a money market fund. There is no reason to hold large amounts of money at the bank.
30 Jul 2008 02:27
Post 2 of 4
Thank you for your article
i'm poor but fighting always !!!!!!!!!!!!!!!
i'm poor but fighting always !!!!!!!!!!!!!!!
30 Jul 2008 03:20
Post 3 of 4
i love dollars~~~~~
hey , fetch some to me ~ :D:D:D:D
hey , fetch some to me ~ :D:D:D:D
30 Jul 2008 03:21
Post 4 of 4
Money market funds are clearly a smart place to hold your money. If you are between investments, saving for a house, saving for a vehicle purchase, or just looking for a safe place to put money, I urge you to put the money in a money market fund. There is no reason to hold large amounts of money at the bank.
![[em7]](http://img.alibaba.com/images/eng/style/icon/emoticons_shy.gif){kind=icon}
hey, this hits the point ! Thanks for sharing. I am now trying to save more and retire earlier...
31 Jul 2008 02:30
Page 1 of 1