How to retire as a millionaire . . .

**Shek** · 04 Jan 08,, 16:55

I am creating this thread as a spinoff to the question asked here, Economic Riddles. Stay tuned for more when I get a chance to actually dig out some material for the thread

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**dalem** · 04 Jan 08,, 16:56

"First, get a million dollars." - Steve Martin

-dale

**Shek** · 04 Jan 08,, 17:13

Originally Posted by dalem

"First, get a million dollars." - Steve Martin

-dale

Nice. I use a Steve Martin SNL clip from a few years back (i.e., not as a cast member but as the host) on savings.

**Shek** · 04 Jan 08,, 17:29

You won't get any hot stock tips in the thread from me, and in fact, I'd argue that specific stocks shouldn't be a primary tool in your portfolio.

Instead, my message is to use time as your ally and index funds as your friend in reaching your goal of retiring with a large next egg.

LESSON 1

Time Value of Money

"Money makes money and the money that money makes makes more money"-Ben Franklin

A simple example illustrates this. A 10% return on $100 will earn you $1.00, while a 10% return on $110 will earn you $1.10, and so on. The lesson here is that you must "get in the game" as early as possible so that you can start to accrue a return. Assuming a constant return each year of 10%, the formula to determining the future value in 40 years of $100 invested today is:

100(1 + 0.10)^40 = 100(45.26) = $4,526

The more generic formula is x (1 + r)^n, where

x = amount of money invested that will compound over time
r = annual rate of return on investment
n = # of time periods

Thus, for a 25 year old, the opportunity cost of spending $100 on whatever today is forgoing the opportunity of having $4,526 40 years down the road at age 65 to spend in retirement ($4,526 40 years from now is not the same as having $4,256 today since inflation will eat away at value, but I will cover how to account for this in a future post).

Homework )

Read Amazon.com: The Richest Man in Babylon: Books: George S. Clason. If you are very "price sensitive" and don't want to spend $7, then use this condensed review version to learn how to "make gold your slave".

**dalem** · 04 Jan 08,, 17:55

Compound interest is the bestest thing ever invented. It is the long, slow, sloppy B J of the financial universe.

-dale

**Shek** · 04 Jan 08,, 18:08

Originally Posted by dalem

Compound interest is the bestest thing ever invented. It is the long, slow, sloppy B J of the financial universe.

-dale

I feel like a Geico commercial. I'm the dry, ordinary individual, and then you're the Howard Stern/celeb shock jock translator.

**Shek** · 04 Jan 08,, 18:20

Here's the XL file that allows you to play around with some numbers a bit. It a little dynamic in terms of user friendliness, but nowhere near where I'd like it to be. Over the course of the next few days I'll keep on posting "lessons" that will help explain the principles behind how to use the spreadsheet to get at a ballpark estimate of how much you need to save to meet your retirement goals for your IRA.

**dalem** · 04 Jan 08,, 18:34

Originally Posted by Shek

I feel like a Geico commercial. I'm the dry, ordinary individual, and then your the Howard Stern/celeb shock jock translator.

Happy to help.

-dale

**tim52** · 04 Jan 08,, 19:05

Originally Posted by dalem

"First, get a million dollars." - Steve Martin

-dale

Damn beat me to it - what a classic line

**Ryan Bailey** · 07 Jan 08,, 15:56

"Neither a borrower nor a lender be"

from Wm. Shakespeare's 'Hamlet'
The Character Polonius

**lemontree** · 08 Jan 08,, 04:19

How to retire a milluionaire....

A good well disciplined savings startegy.

Start saving early in life, spread your exposure to debt/ equity/ property depending on your assets.

Do not depend on bank fix deposits (they ensure you remain poor).

Ensure an annual growth of 30% for atleast 75% of your assets.

**dalem** · 08 Jan 08,, 04:47

30%? What are you investing in, the Spice Mines of Kessel?

I feel good about 10%, myself.

-dale

**lemontree** · 08 Jan 08,, 05:31

Originally Posted by dalem

30%? What are you investing in, the Spice Mines of Kessel?

I feel good about 10%, myself.

-dale

My mistake, I should have been specific.

There are mutual funds in India, like Merrill Lynch, Fidelity etc...that are giving almost 50% returns.

The stock marrket is giving almost 75-100% returns provided one has carried out basic value investing.

**bolo121** · 08 Jan 08,, 05:43

Not for much longer
PE ratios of most indian companies have already gone beyond realistic and into bubble territory (had an article on it but cant find it now). Even the TV program pundits are now forecasting corrections in the near future. I pulled out my cash from the two funds I had with merryl and franklin templeton last month.
Whenever i read Shek's posts i feel tempted to go dig out my old economics textbooks again