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Weedman | Is this actually possible? |
@ 20 invest $10,000 in the stock market/mutual fund
every year add $10,000
keep going until your 65, or for 45 years
reinvest all earnings in as well
don't take anything out until your 65
historically the stock market has given a 10% return per year
In theory you should have made about $8.5 million by the time you retire. and will make about $1 million a year if continued to invest and lived off of the interest. And you would have made all of this money just from investing a total of $460,000
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
To make $10,000 a year in which to invest... you would probably need to make over $60,000 (dual or single income) in order to do it safely, since half your income goes towards taxes, insurance, etc. 2/3 of the remainder goes towards necessities, and the rest is spending money/investing money..
Is this actually possible or is it just a dream. |
 |
 
Beau.Gus
 |
It is feasible, and despite what most people who have not managed (or bothered) to amass any wealth over time, it is actually quite easy. Though sometimes it might make you a little "queasy"!
All you have to do is to ignore the market, ignore all the advice that everyone wants to give you, and just do it!
Here is how easy it is...and the only secret is "compound interest"...
Let's assume that putting $10,000 in the market at age twenty is tough, but that you get a job when you are 20 that pays, say, $28,000... if you start with just $10 (ten bucks!), and you ALWAYS (whatever the market is doing) "pay yourself first" and put 10% of each and every paycheck you get into a growth-oriented mutual fund, over the next 45 years that fund will average 8-10% a year, even if you never get a raise, and never contribute more than 10%, it will grow to a value of about $400,000. And just like the monkey says, if you start with $10,000 and can add $10,000 a year, over 45 years it will easily grow to eight or nine million!
So why don't more people have that kind of money?
Here is the truth: in bad times, most people are too dumb to believe there is a future until enough people around them start to act like there is one, so when the market "pulls back" (like it just did), they take their money OUT at a loss...and they don't put it back until too late to catch the wave back up. And in good times, people invest MORE instead of less, which is counter-productive. You will get richest by buying stocks when they stink and selling them when they are everybodys' favorite, but 90% of "investors" do exactly the opposite! |
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rcdrury
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You've got the right idea, you just need to assess the feasibility in terms of a budget. A few rules you need to follow:
Outline a budget and revise it yearly.
Always maintain a liquid cash savings of 3 months income or 6 months minimum expenses, whichever is greater.
When investing, do so in tax advantaged ways. Participate in your 401(k) or qualified retirement plan if available, save in IRAs (Roth if you're eligible). After those sources are maxed, look into other tax-free or tax-deferred options such as muni bonds, annuities, or variable life insurance (don't let the anti-insurance hecklers in this forum dissuade you on these suggestions - generally, anything that defers taxes is preferable to anything that doesn't).
Contrary to recent history, and some of the input I've read here, at age 20, it's quite safe to plan on your 10% market return, provided you maintain proper asset allocation and rebalancing.
Dollar cost average. Don't put that 10k in the market at once, but do so in smaller amounts at regular intervals. When the market is rising, you're making money. When it's dropping, you're buying in at lower prices. You win either way. Chasing high returns is how you fail in the market. |
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Steve D
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As folks have said, it is possible, but not really feasible. You are suggesting putting away 15% of your gross earnings however, you don't count in family, etc.
Let's redo your numbers - $60,000 before taxes, say $42,000 after (optimistic). Now let's try some rent...I don't know where you live, but in a city will be $1,000 a month easy (saves commuting costs), so that is $12,000 a year, bringing you down to $30,000. Assuming you eat in each night, that is probably $75/week for groceries, which is $300 a month or $3600 a year, now you are down to $26,400. Let's say you have a modest clothing budget - another $2,000. Car and renters insurance - $2,000, down to $22,400. Utilities, phone, cable, cellphone - $400 a month or $4800 a year, down to $17,600. Assuming you don't drive much, 20 gallons of gas every other week or 40 gallons a month, $2,00 a gallon, $80 a months or about $1,000 a year - $16,600. Car maintenance, oil change etc., let's be kind - $600 a year - $16,000 left. Health care (you want to take a chance or go with insurance from your employer). No insurance, figure no major injuries, let's say $500 a year, or you can get insurance from an employer, let's say $2,500 a year. So, either $15,500 and you better hope you stay healthy or $13,500.
Now, you have $15,500 left, so you can put away your $10K...but that's no eating out or going out for drinks with friends, no vacation, staying healthy (no broken bones playing softball, no appendicitis). That's no little extras, no XMas presents given. And no marriage and kids.
To realistically put away that 10K a year, think earnings more along the lines of $100K and if you are married with kids, think closer to $150K (don't forget you will also be saving for college, etc.).
The idea is great and you should definitely save as much as you can starting as early as you can (and btw, the stock market historically returns 8% a year, not 10%) |
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Thor
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You have found what they sometimes call the eighth wonder of the world, the power of compound interest.
Problem is that in 45 years with inflation as it is, your $8.5 mil. is only worth a million and your income is more like $100k-$150k a year in today's dollars. |
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$andman
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numbers don't lie....but putting away 10k ,when you need a car,a home,have kids,or become ill or injured,is rarely feasable... |
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T D
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Yes, it's posible if you never get a girlfriend and live in your parents basement until you are 65. |
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toppy
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Yes it was true. But right now the way the stock markets/mutual fund is going it won't work.
The Bailouts is going to shock the American people, they are going to wake up and find out the crooks in the White house took everything.
We are called The Sleeping Giant and by reading this I can see why.
As long as went sit by and let this happen (bailouts) and do nothing, then you might kiss America good by and say welcome China.
Hello, the market is crashing!
America is falling!
Wake up before it is to late.
NWO |
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Ted
 |
If you are doing this in your own name, you need to allow for taxes every year. If this is in an IRA or 401k, then don't worry about taxes.
10,000 isn't a bad number as a constant because your income will probably rise as time goes on to cover the cost of kids, etc.
10% is a bit optimistic. Try with 8%.
Basically, the idea is sound. Compound earnings work in your favor more the earlier you start. (I didn't check your arithmetic). |
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CS101
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No its not possible. You used a compound interest calculator for your figures. The stock market and the mutual fund market rates of return are not compounded, their rates of returns are over stated years. Compounding is a contract for a period of time for a guaranteed rate of return. The market cannot do that. Look up any mutual fund or stock and look at what they have done in the last ten years, you will find that you probably would have lost money. In reality, the average 401k or similar retirement fund will return 4 to 7 percent. |
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