You don’t have to be born into a wealthy family or even a genius to amass millions by retirement. You just need to start as early as possible. Just ask the Money Guy, aka the two-man team run by Brian Preston, CPA, CFP, PFS, and Bo Hanson, CFA, CFP. They developed the Wealth Multiplier concept to show how even small amounts invested monthly can grow into millions over time.
Your Wealth Multiplier begins the moment you start investing — or when someone invests on your behalf. The earlier you start, the more your money multiplies, thanks to compound interest. That’s why waiting even a few years can mean contributing hundreds more per month just to catch up.
The Earlier You Start, the Better
The Wealth Multiplier technique essentially gamifies investing over time. You simply plug in your age, along with how much you’ve invested to date. With this information, you can determine how much you’ll need to invest every month to become a millionaire — or, better yet, a multimillionaire — by age 65.
The sooner you start, the less you need to save and invest every month. At age 20, you’d only need to put away $95 a month to reach $1 million by age 65. Beginning in your 30s raises the amount to about $340 per month, while waiting until you reach the big 4-0 means saving over $1,000 monthly.
It’s All About Compound Interest
Compound interest can be a true double-edged sword: It can cut deep when used against you, like with high-interest credit card debt. But when it works in your favor through investments, it can help you overcome financial obstacles and build long-term wealth.
A big reason Preston and Hanson want you to start as early as possible is to allow compound interest to work over time. Their Wealth Multiplier calculates how much every dollar you invest can grow based on your age when you invest it.
“While returns do change when investing at different ages (for example, 10% at 20, 9% at 30, and 8% at 40), if one dollar is invested at age 20, it is assumed that it will earn 10% from age 20 to 65,” they wrote.
Your money doesn’t stop growing when you retire, either. You may rebalance your portfolio to more conservative investments, but the power of compounding continues as long as you’re invested.
Whether you choose to use the Wealth Multiplier from the Money Guy or do the math yourself, the goal is to understand how compound interest works and how it can benefit you. Just as starting to invest early will help you in the long run, so will gaining financial literacy and demystifying terms that might feel intimidating at first.
Take a Long-Term View of the Stock Market
If there’s one thing that’s consistent about the stock market, it’s its inconsistency. The Money Guy team is well aware of this and has built that knowledge into their method.
“The Wealth Multiplier assumes a flat percentage return every single year, which is simply not realistic. Instead of consistent 10% per-year returns, you may instead experience a gain of 40%, loss of 20%, gain of 0%, then a gain of 25%,” they wrote.
But they don’t want this reality to discourage you from investing — far from it. Take a deep breath and remember that it’s normal for investment returns to fluctuate year to year. However, in the long term, the stock market has historically averaged a 10% annual return.
Getting accustomed to the ups and downs of the stock market is an understated benefit of the Wealth Multiplier approach. The sooner you get started, the more familiar you’ll become with the market’s natural volatility, making you less likely to react emotionally to short-term drops.
Of course, it’s never too late to learn how to grow your wealth through saving and investing. While starting in your 20s is ideal, the next best time to begin is right now.
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