- October 27, 2016
- 0 Comments
Let’s get real about what it takes to build wealth in the stock market.
Time, money, and risk.
As a successful, but not yet wealthy, young professional or business owner – you lack the money your more mature co-workers and business colleagues possess, but you have a wealth of time. This applies to those of you in your 20s, 30s, or 40s – you have time.
But is it enough time to build wealth?
Let’s assume that your wealth building goal is $5,000,000. That would be enough to generate $250,000 to $350,000 a year with moderate risk. When you add in the fact that you could take on a less stressful career or simply quit all together, accumulating $5,000,000 seems like a worthy goal indeed.
You’ve got a small fortune of about $400,000 in your 401(k) or IRA and you are currently maxing out your 401(k) at $18,000 per year. Assuming your account is averaging an aggressive 8% return, what will it take to reach your wealth building goal?
Twenty-eight years. 28 years.
Are you surprised? You shouldn’t be if you understand the Rule of 72.
The Rule of 72 says that when you divide 72 by your assumed annual return you get the number of years it takes for your money to double. We assumed an 8% average return, therefore our account will double every 9 years. That’s almost a decade.
If it’s taking you almost a decade to double your money it’s not likely that you’ll build wealth early enough to enjoy it.
Solution: You’ve got to find a way to take on more risk to potentially get more return.
You can try to pick better stocks, which let’s be honest pretty much boils down to guessing which investments might do well, or you can take a smarter more deliberate approach to wealth building.
Why not use an investment process that incorporates the same principles of global diversification, dividend reinvestments, and asset allocation yet applies them in a different way to increase your wealth building potential?
When the alternative is to wait 28 years, why not invest differently?