Tuesday, November 08, 2011

How can I become a millionaire?

There were actually a couple of short periods of time back in 2000 when I was technically a "millionaire", at least on paper (plus one time when a broker error made me a millionaire for a weekend!) But, as they say, "easy come, easy go." And back in 2005 I was doing so poorly financially that I actually filed for bankruptcy. Since November 30, 2005 (the day my bankruptcy was discharged) I have gradually been slowly climbing back up the lower rungs of the wealth ladder out of the pit of gloom, primarily through regular retirement contributions but also cutting spending and saving when possible, so that now I actually have a modest amount of "investments." I'm certainly not a millionaire or in the top 1% or even the top 10%, but I'm somewhere in the top 20% now. I won't disclose my exact "wealth", but it's very loosely north of $50,000 and south of $250,000, so lets pretend that it is $100,000 for the sake of argument and to have a nice round number. So, the question of the day is:
How can I become a millionaire?
Seriously. It's a legitimate question. How likely I am to become a millionaire again is an open and essentially unanswerable question, but what options or paths to that end are available is a reasonable question.
Here are the practical paths that I have identified in just a few minutes today:
  1. Buy a winning lottery ticket. Hey, sometimes it actually does payoff, but I won't bet on it.
  2. Marry a wealthy woman. Ditto.
  3. Start a successful business. Ditto, except that it actually still is a (semi-remote) possibility.
  4. Join a hot startup. Ditto, but a little more possible. (Seriously, send me leads on this!)
  5. A short string of wildly-successful option trades. Hey, I actually did this in 1998 and 1999, but... a long story... and not likely to be repeated.
  6. Invest in a hot stock that rises 40% a year for 7 years. Technically possible, but the odds remain long.
  7. Investments that rise 20% a year for 13 years. More doable, but still quite difficult.
  8. Investments that rise 15% a year for 17 years. On the fringe of being practical, but too long to wait.
  9. Investments that rise 10% a year for 24 years. Starting to sound within reach technically, but not within reach time-wise.
  10. Investments that rise 8% a year for 30 years. Great, something I might actually have a shot at achieving, but only if my goal is to leave a million in my will rather than enjoy it during retirement.
  11. Investments that rise 5% a year for 48 years. Ditto. I could reasonably expect to do this, but again not for my personal use.
  12. Investments that rise 4% a year for 59 years. That rate of return is reasonable and achievable for an average investor, but won't achieve the end goal within my expected lifetime.
And then there is inflation, taxes, bad years, etc. And presuming that you have a reasonable income stream while your wealth is growing.
And then there is a bigger pair of questions. Once you have accumulated $1 million:
  1. How do you keep it?
  2. How can you live off of it in a sustainable manner?
It may seem obvious that you save $1 million for retirement and then spend it all in retirement, but that is a risky expectation due to uncertainty about the future. Better to define an allocation of money that you will be spending and money that remains dedicated to further investment. That's a topic for future discussion. Here we're just concerned with getting to $1 million (ASAP) in the first place.
Where do I do from here? The only things I can say with certainty are that I will continue making my retirement contributions and hopefully see some compound returns over the years. I guess I can also safely say that unless I manage to achieve 20% annual returns I won't hit $1 million when I retire in 13 years. That is at least a good starting point for thinking about where I am, what I could achieve, and what my options are.


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