The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 39

Two Ways to Make a Million

Do you sincerely want to be rich? You're not alone. While the American dream is little more than “lottery delusions” for most folks, it needn't be. There is a way, and it isn't a get-rich-quick scheme. Using the power of compound interest, practically anyone can pile up a million by retirement. All it takes is a modest willingness to save and reasonable investments.

These charts show two ways to amass a million bucks. One is the lumpsum approach, and the other way is to sock it to 'em periodically. The first example presupposes you're 30 years old with $10,000 in a tax-free IRA. If you make your investments grow at a 15 percent average annual rate, which is impressive but not impossible, you will have $1.3 million when you're 65. Amazed? Such is the awesome power of compound interest.

What if you don't have $10,000? The second chart assumes you're 30 years old and sock away $1,000 each year into your IRA. You again make your boodle grow at 15 percent annually. At age 65, you will have just over a million bucks. Is this realistic? I think so, but it involves some “ifs.” The 15 percent rate isn't impossible. The S&P 500 has averaged better than that over the last decade. But the example doesn't account for inflation. If inflation averages 4 percent annually, you will need 19 percent annually (15 plus 4) to amass the million dollars of real purchasing power. This is tougher, but not impossible. More than 30 mutual funds have grown faster than that ...