It was a typical day.
The birds were chirping. Car horns are honking. The sun is shining.
Nothing extraordinary.
Then I decide to look at one of my retirement accounts, when lo and behold, I saw $466 in capital gains I earned the end of December last year. This was a surprise because I wasn’t expecting to earn much on the account as I was in the early stages of still building this one up.
Looking at some other accounts, I learned I gained over $25k! Not too shabby.
Let me illustrate how investing can turn you into a millionaire.
A millionaire is built by attracting $1 dollar at a time
If you save $24,000.00 per year your savings may grow to $1,070,380.15 after 17 years. This includes a starting balance of $0.00 and a 10% annual rate of return.
| Starting amount | $0.00 |
|---|---|
| Years | 17 years. |
| Additional contributions | $24,000.00 per year |
| Rate of return | 10% compounded annually |
| Total amount you will have contributed | $408,000.00 |
| Total interest | $662,380.15 |
| Total at end of investment | $1,070,380.15 |
Therefore, if you start with nothing and decide to max out your 401k for 17 years, you are now part of the double comma club! You can see the numbers below.
| Year | Additions | Interest | Balance |
|---|---|---|---|
| Start | $0.00 | $0.00 | |
| 1 | $24,000.00 | $2,400.00 | $26,400.00 |
| 2 | $24,000.00 | $5,040.00 | $55,440.00 |
| 3 | $24,000.00 | $7,944.00 | $87,384.00 |
| 4 | $24,000.00 | $11,138.40 | $122,522.40 |
| 5 | $24,000.00 | $14,652.24 | $161,174.64 |
| 6 | $24,000.00 | $18,517.46 | $203,692.10 |
| 7 | $24,000.00 | $22,769.21 | $250,461.31 |
| 8 | $24,000.00 | $27,446.13 | $301,907.44 |
| 9 | $24,000.00 | $32,590.74 | $358,498.18 |
| 10 | $24,000.00 | $38,249.82 | $420,748.00 |
| 11 | $24,000.00 | $44,474.80 | $489,222.80 |
| 12 | $24,000.00 | $51,322.28 | $564,545.08 |
| 13 | $24,000.00 | $58,854.51 | $647,399.59 |
| 14 | $24,000.00 | $67,139.96 | $738,539.55 |
| 15 | $24,000.00 | $76,253.96 | $838,793.51 |
| 16 | $24,000.00 | $86,279.35 | $949,072.86 |
| 17 | $24,000.00 | $97,307.29 | $1,070,380.15 |
Grow your net worth with Real estate and REIT’s
During the Great Recession, the subprime housing market destroyed property values all over the country.
Since most Americans net worth is tied to their homes, around 50% or more, this caused many people to delay retirement because their homes were now worth less than the mortgage owed on them.
Warren Buffet even said that homes were selling for so cheap in some markets that if he had the time and resources to manage them, he would buy hundreds of thousands of homes to collect the rent on them.
Might I suggest an alternative to active real estate investor, passive real estate investing with REIT’s; a real estate investment trust (“REIT”) is a company that owns, operates or finances income-producing real estate.
Approximately 87 million Americans invest in REIT stocks through their 401(k) and other investment funds. REITs must pay out at least 90 % of their taxable income to shareholders—and most pay out 100 %. In turn, shareholders pay the income taxes on those dividends.
mREITs (or mortgage REITs) don’t own real estate directly, instead they finance real estate and earn income from the interest on these investments.
The reason I love Park Place so much
I know that everyone wants Boardwalk with a hotel because it makes you the most money in the game, but Park Place is the first stop on the tour.
You have to pass that to get to Boardwalk.
However, there are times when you roll the dice and land on Park Place and then hit a two and land on Boardwalk! Cha ching!
Park Place sets up the psychological warfare that I never could.
You land on my property and have to pay me $1500 for Park Place and $2000 for Boardwalk. That is $3500 bucks!
You now see the reason why people own real estate. You can make some serious cash collecting rent and it seems to come around on the first of every month over and over and over again.
Once you put in the work to own the property and maintain it, it starts to spit off cash flow and feeds you.
If you look on the Monopoly Park Place deed, you will notice in the beginning you only collect $35 in rent with no houses or hotels. As you start owning more properties, you start collecting more in rent.
If you cannot stomach the thought of waking up at 3 am to a phone cal about a clogged sink or toilet, then you can hire a property manager or just stay passive and invest in REITs instead.
Why you should invest
It’s simple. You should invest because it can make you rich.
Consistent investing has proven to turn people into millionaires over time. You could do the following:
- Collect teeny tiny amounts of interest from your checking account with your local bank
- Put your money under a mattress where it earns $0
- Invest in Mr. Market and let compound interest do its thing
No pressure.
Think of me as your fiscal Yoda.
Here to guide, I am.
Much to learn about investing, you have.
May the fiscal force be with you.