A Simple Way To Turn $1,000 Into $1,000,000

We are all looking for easy ways to accomplish useful things.  Well here is a way to be a millionaire without winning a lottery.

Take $1,000, invest it at 5% and wait 141 years and 7 months.  Only 73 years if you can get 10%.

If you have only $100 you can get there in a little less than 189 years at 5% and 97 years at 10%

If you are in a high tax bracket, 5% is what is left over after taxes are paid on 10%

The important lessons here:

  1. By having ten times more capital, you reduce the time by less than 25%
  2. By doubling the yield you can about halve the time
  3. Yield and time matter more than the principal amount.
  4. Be very conscious of things that reduce the yield
    1. Investment fund MER
    2. Taxes can reduce yield by almost half.  Avoid taxes
    3. Tax-free growth is good.  TFSA, RRSP, RESP, Life Insurance
    4. Be risk averse.  The money you lose is important but the time lost is not recoverable.

People are not good at intuitively understanding compound interest.  Do the arithmetic when faced with anything involving yield and time.

If you find these helpful, please tell others and subscribe to receive the daily MoneyFYI post by email.  Go to moneyfyi.wordpress.com
Contact: don@moneyfyi.com  |  Follow Twitter   @DonShaughnessy

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

 

POP TEST

Howard Hughes turned $400,000 into $2,000,000,000 in 53 years.
What is his average compound rate of return?

7 Comments on “A Simple Way To Turn $1,000 Into $1,000,000

  1. Reblogged this on The IDEA Bucket and commented:
    Here’s an amazing article I found on the power of compounding. You can check it out in this wonderful blog “money FYI”

  2. Pingback: Compound to the Sun ($1000 to $1000000) | Mike Gopsill

  3. The best way to live happy and debt free is to buy things used, or better swap, barter or give away what you do not need. We all bought (pun sort of intended) into the notion that more is better and that having that $1,000,000 is an absolute good thing. Maybe it is not. Maybe if more people learned the art of generosity and doing for others, the whole world would be a better place. But then the world might have to be run by women. Frankly, i believe that capitalism needs to be completely rethought…but it aint gonna happen. Why? Because we have literally bought the fiction that growth and an ever increasing economy is essential…what do i know? Nothing. I just see us killing the world and its climate and despair of everything. I hope young people like you will find some solutions.

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