Would you like to become a millionaire? For some this is a serious goal, for others a vague dream, and still others, something that seems impossible. But it is not impossible. Almost anyone can become a millionaire if you know how and follow the rules.
This is not another get-rich-quick solution, so if that is what you are looking for, look elsewhere.
What does the greatest investor of all times recommend? Yes, I am talking about Warren Buffet. He has not made his billions through technology like Bill Gates, Elon Musk or Jeff Bezos. He has made his fortune through wise investing. But he acknowledges that the tremendous amount of research he and his team do is not for everyone.
For the vast majority of people like you and me who want to accumulate wealth, he advises \”consistently buy an S&P 500 low-cost index fund… I think it\’s the thing that makes the most sense practically all of the time.\” And he admits that last year and many other years he and his team have not been able to match or outperform the S&P 500. It is the standard of stock performance excellence.
In case you don\’t know, the S&P 500 index is Standard & Poor\’s index or list of the 500 largest U.S. publicly traded companies, weighted or adjusted for market capitalization. Market capitalization means the value of a company that is traded on the stock market, calculated by multiplying the total number of shares by the present share price. So a company whose shares sell for $30 with 1,000,000 total shares would have a market capitalization of $30,000,000. Of course for giant companies this number is much higher.
Vanguard, Fidelity and other investment companies offer S&P 500 index funds with very low management fees. These funds invest very accurately in the stocks that make up the S&P 500. So you know you are investing in the rock solid backbone of the American economy, the 500 largest publicly traded companies. The reason a company gets listed in the S&P 500 in the first place is that it outperforms the competition and becomes one of America\’s largest companies – survival of the fittest. That right there is one reason this is such a great investment.
(Note: I am not a licensed investment adviser, just a private investor/writer interested in how to be successful, so before you invest please consult a professional at Fidelity, Vanguard or many others you can find online. Past performance of the S&P 500 is no guarantee of future yields, and your results may differ.)
If you have the opportunity, consider investing through an IRA (Individual Retirement Account) or 401k plan if offered by your employer, many of which will match your contribution (say you put in $1,000 and they put in $1,000 for you each year). If you own a small business, you can set up what is called a SEP-IRA (SEP stands for Simplified Employer Pension). If you have no company affiliation, you can still invest in your own personal IRA, although there are limits as to how much you can contribute each year.
Any way you choose, what is called a qualified investment plan (meaning it is qualified to grow without paying taxes on earnings each year) allows the stocks to grow over time, increasing in value, and you never have to pay a dime in taxes until you withdraw the funds in retirement. At that point your tax bracket will likely be lower so you pay lower taxes.
You have to consider your IRA or 401k sacred. Do not take the money out early or you will pay a stiff penalty – and then it will be gone. I know way too many people who took out their retirement money early for what they considered some pressing need, and never put it back, and really regret it now.
But the real magic that can make you a millionaire is what is called compound interest. The great genius Albert Einstein loved compounding, and said on various occasions:
- \”Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn\’t … pays it.\”
- \”Compound interest is the most powerful force in the universe.\”
- \”Compound interest is the greatest mathematical discovery of all time.\”
The reason compound interest is so powerful is that your investment earns interest and dividends as the stocks increase in value over time, and that increased price earns more interest and dividends, and it builds on itself exponentially. According to this online resource, if you had invested $1,000 in the S&P 500 40 years ago (roughly the span of a career in business), it would now be worth $21,720.41. If you had managed to put aside a total of $50,000 40 years ago and put it in an S&P 500 index fund, the total would now be worth $1,086,020, and you would be a millionaire!
Now if you can\’t start out with $50,000, then just keep adding to it year after year, as Warren Buffet advises. Due to \”the most powerful force in the universe\” the results can be astounding.
This does not include Social Security or any other potential sources of retirement income.
Again this author is not a professional tax advisor – just someone interested in how to be successful in life. All of this information can easily be found by searching online. Good luck and good investing!
Written by Successagram founder Buck Lawrimore
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