Investing is one of the keys to becoming a millionaire. It's one of the secrets from your millionaire neighbors. But the truth is – investing itself isn't the secret. It's how you do it that matters.
I want to show you what it takes right now to become a millionaire through investing. It possible, and I'm going to prove it. Then, next week, I'm going to kick off the week with a millionaire who did it 100% through the stock market as part of our millionaire series.
So, here's how you can become a millionaire by investing.
The Factors to Becoming a Millionaire
The math on becoming a millionaire depends on 2 things:
- Rate of Return
You can always use more of one to make up for the other, but a good investor takes advantage of both.
Time is easy: start investing early! The earlier you start, the more time you have for the magic of compound interest to help you build huge investment returns. It's better to give yourself 40 years instead of 20 years. Or 50 years instead of 30 years. You get it. Time matters.
Next, the rate of return matters. You will make so much more money at an 8% rate of return over a 4% rate of return. But realize, with higher returns comes higher risk. And, as you age, you probably can't handle too much risk.
The Math on Investing to Become a Millionaire
So, now let's look at some scenarios. The chart below shows the growth of $10,000 over several time frames at different rates of return. As you can see, simply starting with $10,000 and doing nothing won't get you to be a millionaire, but this chart does illustrate one great point: Every $10,000 today is worth $100,000 in 30 years.
Okay, now let's look at a more realistic investing picture. What if, instead of starting with $10,000 and doing nothing, you simply contributed $100 a month?
So, even that doesn't cut it? So what does it take to invest to be a millionaire?
It takes $300 per month, invested for 40 years, and earning an 8% average annual return. That will get you $1,000,000.
The Key Lesson on Investing To Become a Millionaire
The key lesson learned: start early. Forty years of investing may seem daunting if you're already 40, but it doesn't seem so bad if you're only 20. Plus, $300 per month isn't so bad either – it's less than you are supposed to contribute to your IRA each year. It isn't unheard of to receive an employer match in a 401k that is about that amount. The money is attainable – the question is, are you making time work for you?
What are your thoughts on investing to become a millionaire?