Who Wants To Be a Millionaire?

November 20th, 2009 Posted by Stocks No Comment yet

I was looking through my files and saw an old Excel file on the accumulative effect of a good investment plan.  I thought it would be interesting to show you.  If you want to be a millionaire it’s either easy or extremely difficult – mostly, it depends on your age.  There are other factors that are much more flexible but there is no getting around the ‘age’ thing.

My friend Henrik told me a story he read about a guy struggling to get by on a million dollar a year salary.  I was dumb founded having heard the story but I can understand the premise behind the rational. However, I felt sorry for myself because I can’t relate. Luckily for the rest of us and surprisingly, you don’t have to be born with a silver spoon to retire rich.  It is also interestingly, you don’t have to have a job that pays very well neither. Don’t get me wrong it wouldn’t hurt to be born rich or to have a high paying job if your goal is to become a millionaire.

Two Simple Plans

The Installment Plan

You start with just investing $200 per month every month in an investment that gives you a return of 15 percent annually.  It would be difficult to find this kind of returns but it is not impossible.  The hardest part is if you are procrastinator like me because you will need to invest this money every month for 30 years.  Here’s what your investment would be at the end of thirty years.  Look at the big difference if you only have 20 years.



10 Yrs

20 Yrs

30 Yrs

Pmt

Rate

Future

PV 3% Inflation

Future

PV 3% Inflation

Future

PV 3% Inflation

100

15%

27,522

20,396

149,724

82,232

692,328

513,081

200

15%

55,043

40,792

299,448

164,464

1,384,656

1,026,162

The Lump Sum Plan

You start with putting $20,000 in an investment that will give you a return of 15 percent per year.  Yes, the investment duration is also for 30 years.  The result is surprisingly similar.  Here’s what your investment would be at the end.  Again, if you only have 20 years left – difficult.


 


10 Yrs

20 Yrs

30 Yrs

PV

Rate

Future

PV 3% Inflation

Future

PV 3% Inflation

Future

PV 3% Inflation

1,000

15%

4,440

3,291

19,715

10,828

87,541

64,876

2,000

15%

8,880

6,581

39,431

21,656

175,082

129,752

3,000

15%

13,321

9,872

59,146

32,485

262,623

194,629

5,000

15%

22,201

16,453

98,577

54,141

437,705

324,381

8,000

15%

35,522

26,325

157,724

86,626

700,328

519,010

10,000

15%

44,402

32,906

197,155

108,282

875,410

648,762

20,000

15%

88,804

65,812

394,310

216,564

1,750,820

1,297,525

The moral of the investing story is start early, very early.  Make sure you have more than 30 years left. The sad truth of only having 30 years on this plan is obvious.  If this is you, think of the more positive aspect, it wouldn’t be so negative for your kin.

Howard

P.S.  Value investing is the only way to invest.

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