HOW TO INVEST & GET RICH (SLOWLY)

By on May 29, 2012 in Asset Allocation, Bond, Economics, Investing | 15 comments

A version of this article was published in June, 2011

Download my free eBook, 20 Minute Guide to Investing. It’s easy reading and will get you started towards prosperity.

Investing is Not a Get Rich Quick Scheme

“Cash confiscates capital. Long term, after taxes and inflation, the return on cash is negative.” Catherine Keating

When you factor in the impact of inflation, you must achieve a return on your investments of greater than 3 percent or you are losing money.

With today’s difficult economic conditions, wages stagnating, and unemployment still rather high, it’s more important than ever to spend money sensibly. No matter how much you earn, it’s easy to spend it all.

Save and invest a small amount of your income, and over time you can become wealthy.

INVEST YOUR CASH & GROW YOUR WEALTH

There was a guy written up in the newspaper who made $100,000.00 per year. He lost his job and couldn’t find another. His only savings were $5,000.00. But, he had a great looking car and lots of fancy gadgets. These items did him no good when he was unemployed. Financial ruin was knocking at his door. Don’t be that guy!

With a small amount of saving and some smart disciplined investing, you can amass great amounts of wealth.

Learn how long it takes to meet or surpass your financial goals.

Assumptions:

  • Save monthly.
  • Divide Savings among STOCK (60%) and BOND (40%) investments. The historical average annual return of 60% stock funds and 40% bond funds is 7.4%. To be on the conservative side, I’m going to assume an annual return for this portfolio of 7%.
  • Investment returns over the next 20-40 years approximate historical averages; STOCKS 9% BONDS 5%

HOW LONG WILL IT TAKE?

At an annual return of 7% per year, how long until you are wealthy?

How Long Until I’m Wealthy?      
7% return/year      
  20 years 30 years 40 years
$100/month $37,721 $121,997 $242,481
$500/month $260,463 $609,985 $1,312,407
$800/month $416,741 $975,977 $2,099,850

 

If you save $100 per month, in 40 years you will have $242,481.00. Increase that to $800.00 per month and you’ve got over 2 million dollars after 40 years investing.

Drop your monthly investment to $500.00 and invest for 30 years. You still wind up with a nest egg of over $600,000.00. Not bad.

Empowerment-It’s in your Hands

There are no guarantees in life-but regular savings and investing will DEFINITELY make you wealthier than SPENDING!

Finding the balance between spending and saving leads to pleasure now and future security.

In talking with a book editor the other day, he explained to me that the best selling books were about trading options and market timing. He said, basic personal finance books were not selling well. I was so distressed with that information because basic and simple investing strategies lead to greater investment success than fancy market timing and trading strategies. The modern portfolio research substantiates this fact.

Sure, a few lucky folks manage to beat the market returns of a passive index based investing approach every year or so. But, long term, very few individuals or investment companies can beat this basic approach.

If you are patient and disciplined you can be the one with a six or seven figure investment portfolio upon retirement. There are lots of folks who make that goal in even less time.

LEARN ABOUT INVESTING

Download my free eBook, 20 Minute Guide to Investing. It’s a quick read and will get you started toward a wealthy future.

Barbara Friedberg Personal Finance teaches WEALTH BUILDING SKILLS. Pay attention, be patient, don’t overspend on stuff that doesn’t last; save, invest, and you can become rich. Take action to hit your wealth target.

Can’t Get Enough Index Investing?

When did you start investing? If you haven’t started yet, what is stopping you?

    15 Comments

  1. …looks at his car in the parking…looks at his big tv and other fancy gadgets…looks at his bank account balance…I’m that guy! Well except I was never making $100k and I just recently landed a job again. I was pretty much that guy for the last several months though. The stuff that I wasted money on was before I came to my senses about my finances. Now I’m dedicated to spend and save more responsibly. First I just need to build up some cash flow so that I can get serious about investing.

    Modest Money

    May 29, 2012

  2. I started investing when I was 16. As soon as I had my first job, I started trading on my own. Learned a few lessons along the way as well.

    Excited to check out your eBook tonight!

  3. I love seeing long-term forecast charts like that – so motivating! Such a great reminder to start young.. and every little bit will make a big difference.

    Julie @ Freedom 48

    May 29, 2012

  4. @Modest, So glad that you have realized you were on the wrong financial path. Better late than never.
    @Robert-That is really incredible to start investing at age 16. That’s when I was acting like an idiot teen!!Clearly, it’s why you’re such a success.
    @Julie-Me too. I am so fascinated by the power of compounding.

    Barb

    May 29, 2012

  5. I started investing in my 20s, first in bonds, then stocks and bought my first house. My next big investment was income property which worked out pretty well. Now is a great time to buy real estate and invest in the stock market.

    krantcents

    May 30, 2012

  6. @Krantc-Sounds like you and I had a similar trajectory.

    Barb

    May 30, 2012

  7. While it is fun and motivating to visualize the effects of compound interest, it sometimes can be challenging to factor in all of the components – such as where to get that 7%, how much will taxes erode it, how to maintain a consistent growth percent and etc.

    I’m intrigued that you talked to a book publisher! Tell me more!

  8. @Marie, In the short term, where to get that 7% return is quite difficult with today’s low interest rates. If historical stock and bond returns continue into the future and American and international businesses grow, then diversified stock and bond index mutual funds are a good place to get an average 7% return. Just don’t invest any money in the stock or bond market that you need in the next 5 years.

    Barb

    May 30, 2012

  9. Your chart is amazing, thank you so much for posting it! It is giving me another perspective on investing and it looks very tempting!! I will have to sit down with hubby and talk this over with him.
    I was wondering if you could maybe explain Bonds more. Are they safer then Stocks?

    Amy

    May 31, 2012

  10. I wish that we could invest $800 a month right now. With my wife out of work, we are just making ends meet at the moment. However, we have become accustomed to our tight budget and I look forward to being able to invest even more in the future than we did before she became unemployed. The stock market is a scary place for the uninitiated, however! I will have to read your eBook.

    • @ Wayne-Life happens and making ends meet is something to be proud of. Over time, your situation may change and if you can continue watching your money when your wife becomes employed, you will have developed some smart spending habits.

      Barb

      May 31, 2012

  11. I’ve been thinking about investing for quite some time now but I’m too scared to try it. This tips would truly help me to know the safe ways to do it. Do you still have any other tips aside from the tips above? Thanks for sharing.

    Shane

    June 1, 2012

  12. The next few years might be rough, but I believe in good growth for the long term. Thanks for the inclusion. :)

    Invest It Wisely

    June 5, 2012

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