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.