Getting Rich is Simpler than You Think

Would you like to be rich? Money Central says that getting rich is easier than you think. Here's an overview of their thoughts:

Here is the single most important thing you will ever hear about investing: Getting rich is simple.

And here is the second most important thing you will ever hear about investing: You have no excuse not to do it.

Only three ingredients are needed: income, discipline and time.

Here's how it works: Say you start with nothing, invest $500 (of your income) a month (a healthy discipline), and let your money ride (over time) in diversified investments. Long term, the stock market returns at least 10% annually. Assuming a 10% return, you’d have $102,000 after 10 years, $380,000 after 20 years, and $1.1 million in 30 years.

Yes, saving a bit over a long time is a sure way to growing your nest egg. Why? Because of the power of compounding. The piece goes on to explain this:

Compounding is the reinvestment of the interest you receive from the money you set aside.

“Compounding," Albert Einstein said, "is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth.” Einstein was a smart man. But you hardly have to be a genius to make this concept work for you.

But you need more than compounding to help make the most of your money:

The real magic of investing comes when you combine the surprising power of compounding with continuous and regular investments -- in other words, discipline.

The best way to make these continuous investments happen is by setting up an account with a broker or mutual fund that automatically deducts a fixed amount from your bank account every month. “Automatic” is the operative word here.

This is what I do. I have my accounts set up so my paycheck is automatically deposited directly into my checking account. Then, a portion of that is automatically sent to Vanguard every month and then automatically invested in mutual funds I've designated. All of it happens like clockwork without me doing anything. To date, it's worked well and my investments have performed excellently.

Why this process works so well is because 1) it's done automatically and 2) it employs dollar-cost averaging.

The piece ends with a summary we should all keep in mind:

Here's the bottom line, like it or not: The fate of your retirement, your comfort in older age, probably lies in your commitment to the concepts laid out in the paragraphs above. For the vast majority of us, wealth creation is a slow and steady -- and powerful -- process.

As regular readers know, I am a big fan of index investing. Here are a few posts I've written that detail the advantages of investing your money in this way:

• Fund Indexers, Take (Another) Bow
• The Case for Indexing
• Don't Give Up on Index Funds Yet
• Investing Made Easy
• Where the Pros Stash Their Own Dough

Comments

[Yali Friedman]

$1.1 to $1.4 million might sound like a lot now, but assuming a 4% rate of inflation it will be worth about 1/4 of its present value in 30 years. Probably not enough to retire on.

[Henry Koi]

I am very very determined to be a young millionaire within 5 years but do not have the necissary capital to help me. I am very confident that I will suceed. I only need the opportunity. I dont think saving my salary over 30-40 years is the way I want to go.

[Dennis]

Easy....IF....you work hard.

I agree that the principal and model for a business (online or offline) can be simple, but perseverance and a positive attitude are critical.

-Dennis

[TJP]

Nice post once again. Your site makes things very easy for anyone to understand.

[MillyCarol]

You had better hope that your stock market salesperson is All-knowing. Last time I looked, there is ONLY One; and, that person isn't you. If you just inherited some money, and don't want to loose it, do what I did: I prayed that the Almighty Show me where to invest it, and then Show me when to un-invest it (so I could have it to use). The ONLY Time I lost money, was when I invested it per the instruction of the stock salesman. Since that time, however, my life has 'evolved' to total reliance upon my maker...he supplies ALL my needs.

[moneymonk]

Saving 500 a month from your income is not easy. Depending on your salary