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June 28, 2010


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The first million is absolutely the hardest to achieve because of the two rules I believe in.

Rule #1 --- Don't Lose Money - i.e. Avoid having a losing year.
Rule #2 --- Understand the power of compounding.

The other technique that works well is Dollar Cost Averaging by making frequent additional investments, as in a 401K.

I have trading authorization on my 46 year old son's 401K and even though he has a paltry number of available funds to choose from in a Fidelity 401K it has done pretty well and never had a losing year.
When I took it over on 11/26/99 it had a value of . $7,103.45
As of close of market 06/28/10 it has a value of $206,337.46
He has made the maximum contribution allowed for many years. His company cancelled the employer match when the recession started but they have recently reinstated it.
His 401K has been 100% in Pimco's Total Return Bond fund since November 2007.

The first million comes from high savings rate and maximizing your incoming by managing your career, a topic that has been covered at length at FMF.


It's easiest to think about this if you know how to calculate how long it will be for your money to double by using the Rule of 72. Take the rate of return you expect on your investment and divide that number into 72. The answer equals the number of years it will take for your money to double.

For example, if you expect to earn 10% on your investment, your money will double in 7.2 years. It will have doubled twice in 14.4 years and three times in 21.6 years. Doubling three times gives you eight times the amount you started with (2x2x2=8). So if you have $100,000 today, at a 10% annual return you will have $800,000 in 21.6 years.

This simple rule of thumb makes it easy to forecast how much money you'll have in the future at different rates of return.

Old Limey, you are a skilled investor. Ever think of making financial advising a part time post retirement career?

Definitely not for several reasons.
1) You need to be licensed to manage other people's money.
2) You would probably need to start a company - something I checked into once and decided it wasn't for me.
3) You need very expensive liability insurance in case you get sued.
4) I don't need the hassle of people calling me up and second guessing what I am doing.
5) I have always had just one style of investing and it changed as I became older and wealthier. At 75 I could not put myself into the position of investing the way someone that is decades away from retiring would probably want to invest. My children are a different story, they never bug me at all, they are very happy that they have never had a losing year, and they know they will be beneficiaries one day to a sizeable estate.
6) I don't need the money.

I'm with Mike Hunt. It is about saving AND your career. Since it is a lot easier to get $! million when you start with $100k, why not start with even more if you can?

Old Limey, are you interested in adopting me then? ;-)

Looks like you're right. I guess I gotta keep truckin' then...=)

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