Who Wants to be a Millionaire?

Who wants to be a millionaire is an entertaining game show once hosted by Regis Philbin (cue theme song).   The show gave contestants a chance to win a million dollars if they correctly answered a series of multiple choice questions.   The contestants are given help with life lines and audience participation.  Final answer?

You can play your own version of who wants to be a millionaire in the stock market.   The long-term trend of the stock market will give you an opportunity to accumulate wealth if you play correctly.

Time is your friend if you want to accumulate wealth.  The earlier you start investing, the sooner you’ll achieve your goal.   If a 25-year-old wants to retire at age 55 with a million dollars, she must save $442 per month.   If she waited until age 35, she must save $1,316 per month.  If she waited until age 45, she must save $4,881 per month.

Dollar cost averaging is a great way to accumulate wealth.  Dollar cost averaging allows you to save the same dollar amount each month into an investment of your choice.  To increase your odds of success, automate your savings.  Your automatic dollar cost averaging investment program will keep you invested in good times and bad.

Let’s look at investing $500 a month in the Vanguard S&P 500 Index Fund (VFINX) for 10, 20, 30 and 40 years.

  • A $500 monthly investment for 10 years, ended with a value of $131,596. The average annual return was 10.73%
  • A $500 monthly investment for 20 years, ended with a value of $320,243 for an average annual return of 7.73%
  • A $500 monthly investment for 30 years, ended with a value of $1.04 million for an average annual return of 9.26%.
  • A $500 monthly investment for 40 years, ended with a value of $4.16 million for an average annual return of 10.87%.

As you can see time in the market wins!  As Nick Murray once said the best time to invest money is when you have it and the best time to sell is when you need the money.  You can control your savings and expenses.  The more you save and the lower your expenses means more wealth for you and your family.

Someone is sitting in the shade today because someone planted a tree a long time ago. ~ Warren Buffett

Bill Parrott is the President and CEO of Parrott Wealth Management.   For more information on financial planning and investment management, please visit www.parrottwealth.com.

May 15, 2017

Note:  Your returns may differ than those posted in this blog.  The data for the Vanguard S&P 500 Index fund is as of 4/30/2017.

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