Eight Steps to Seven Figures by Charles Carlson
March 17th, 2008 | Published in Book Reviews, Finances, Life | 4 Comments
Eight Steps to Seven Figures by Charles Carlson, 293 pages.
What does it take to be a millionaire when you retire? Less than you think. Certainly less than I thought.
Charles Carlson gives eight steps to achieve that goal:
- Start investing right now. Every day you wait is lost money.
- Establish a goal that matters to you. If possible, make it measurable so you can track your progress.
- Buy only stocks and mutual funds. Forget about the rest.
- Buy only high quality stocks that are leaders in their field or, if you know the area, you are sure will be leaders. Buy what you know and when you don’t use no-load index funds.
- Invest monthly, no matter how small. It adds up through compound interest and forces you to invest when the market is down. Diversify through time, not assets.
- Buy and hold. Sell only when necessary. Never daytrade, which just makes your broker and government rich. Buying and holding makes you rich through better returns and tax reduction. And it’s less stressful to boot.
- Limit taxes as much as possible by taking advantage of tax breaks. Hold stocks for at least a year (though the longer the better) and put in the maximum legal contributions into your 401(k) and/or IRA, or as much as you can afford.
- Live a stable and simple life. Limit shocks to your finances – don’t divorce, don’t job or house hop, don’t get into debt, don’t have ten kids, don’t daytrade. Dare to be boring.
Sounds simple enough. Here’s an example. If a 20 year old invests just $67 per month into a 401(k) (assuming 11% average annual return), he will have a million-dollar portfolio by age 65. That’s less than $37,000 turned into $1,000,000, the magic of compound interest.
But the longer a person waits, the harder it gets. By age 30, the monthly requirement increases to $202 per month. By age 40, it’s $629 per month. That’s why the number one step is to start now, especially if you want to retire early.
If you want to be a millionaire, it isn’t that hard. It just takes a willingness to contribute regularly to your retirement account and live on less than your income. That’s something even I can do. And so can you.
March 17th, 2008 at 10:55 am (#)
I find this an odd choice of topic, Josh, with all the gyrations in the markets these days. The dollar is tanking, we have a negative savings rate, foreign investors are buying US assets at fire sale prices, oil and gold are at record highs. In short, if a 20-something has $67 a month to invest, I’m guessing there will be a lot of competition for in other arenas for that money. Who can say with a straight face that 11% annual return is realistic anymore? Bear Stearns, the whole bank, just sold for $236 million.
Now that last item - Live a simple and stable life - is good advice for anyone.
March 17th, 2008 at 11:02 am (#)
There are always fluxuations. Things right now are not even as bad as in the 80s, yet we went through that just fine. In my financial life, I’m assuming a 11% average is certainly realistic. And if the US market scares you, invest in the world market. Lots of funds there are doing 20-30% increases per year. Wowzers.
My philosophy is that this is a great time to get in, while the market is down.
March 17th, 2008 at 1:09 pm (#)
I admire your optimism and confidence in the economy. I fear that we’re nowhere near the bottom yet, and that picking stocks now is a little like walking in a mine field.
Are you familiar with Wendell Berry’s “Thoughts in the Presence of Fear?” http://www.orionsociety.org/pages/oo/sidebars/America/Berry.html
Since 9-11, my financial planning has been strongly influenced by Berry’s ideas on local economy and agriculture. Good luck with your investments. I hope you’ll post here and let us know how your strategies are working.
Artie
March 17th, 2008 at 1:19 pm (#)
I tend to be an pessimist by nature, so any optimism from me is quite amazing. I have read Berry’s “Thoughts in the Presence of Fear” and much else. I think he has lots of great things to say. I believe and support in local economies and agriculture, but I also know that it’s not likely going to go back to that completely. If it does, great.
I’m taking a long-term approach. If it doesn’t work out and inflation skyrockets and our economy collapses and we’re all dirt poor, then I’ll be the same off as everyone else. If, however, everything continues as it has the last couple hundred years (with ups and downs), then I’ll be in a good position.
I also live on some land so if it comes to it I can hide out in a bunker and live off squirrels, coons, and lizards.