Class of 2014: Here's How You Can Become Multimillionaires

This really is an incredible financial opportunity you won't ever get again.

golden coins in soil with young ...
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Dear Member of the Class of 2014:

Congratulations on your achievement! Your degree is a significant accomplishment, and you should be proud of yourself for reaching that milestone. Before you get too far along your life's path, you should be aware that right now, you have a once-in-a-lifetime opportunity to give yourself a decent chance of winding up a multimillionaire.

Unlike most "limited-time offers" that seem to be repeated frequently, this is one opportunity where time really does matter. It relies on you investing early and often, and then letting the magic of compounding work on your behalf over time. The longer your time frame, the easier it is. And by starting now, you just might be able to become a multimillionaire by retirement, using just the money you can invest in an individual retirement account.

How Does That Work?

The chart below shows what you might end up with at age 67, assuming you invest $5,500 per year in your IRA -- the current maximum for people younger than 50 -- and average around 8 percent per year in returns. There are four lines on that chart. The first assumes you get started now, at around age 23. The other three assume you take a few years to get yourself established before you start investing for your retirement. The difference in the outcomes is stunning.


Data from author's calculations.

Start saving and investing at age 23, and you can wind up with over $2.1 million. Wait until age 28 to start, and the number drops to $1.4 million. Starting at 33, your investment total drops below $1 million. And by waiting until age 38, it winds up closer to $600,000. The only difference is the age that you start, which makes starting your investing journey now the best gift you can give yourself.

There are no guarantees in investing, but 8 percent is in line with -- or even a bit below -- how a broad market index like the S&P 500 (^GPSC) has performed over the long haul when you reinvest dividends. Not only that, but even if the future doesn't stack up as well as the past, the reality is that lousy investing returns still beat not investing at all.

Live Like a Broke College Student

Of course, the toughest part in investing when you're young is that you're just starting out in your career with an entry level job. Your salary is low; you have all sorts of startup costs to cover; and you want some semblance of a life outside the office.

While that's all true, you have a key advantage over your older counterparts. You've probably just spent the last few years living like a broke college student, and with the possible exception of your student loans, you likely don't have many financial strings holding you back. To whatever extent you can, try not to change much about your lifestyle: Keep thinking and living like a broke college student -- drive a reliable but used car, get a low-cost apartment with a roommate, and keep food costs cheap. (Rich and beans make for a decent culinary staple, for instance.)

As you get older and more experienced, your salary may increase, but so too will your financial obligations. Things like a house, kids, age-rated life and health insurance,and so on all carry costs with them that generally increase over time (at least until the kids are grown and the mortgage is paid off). By living cheaply now in order to invest, you'll not only get that compounding magic working for you sooner, but you'll also start out with lower base expenses when those higher expense times come your way in a few years.

Ultimately, the Choice Is Yours

A little sacrifice starting now can help you wind up a multimillionaire later. Postponing your decision has consequences in that the longer you wait, the less time compounding can work its magic on your behalf.

Of course, you can still wind up a multimillionaire if you start later, but the amount you'll have to sock away will be larger. If you think coming up with $5,500 a year is tough now, just think how much tougher it'll be to come up with more later while you're juggling all those other costs.

As you graduate and start your life, you have the potential for an incredibly prosperous future ahead of you. Seize the day, Class of 2014, and start yourself off on your path to becoming a multimillionaire.

Motley Fool contributor Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days.

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33 Comments

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drmike15

What depresses me is not my own long-term savings but that of a young friend who graduated with a double major, fantastic GPA, etc., four years ago and has managed to find all of three jobs, two of them lame commission based gigs with questionable management and a temporary job whose stress level was akin to working in a Roman salt mine. And being female she is of course making barely more than half of what a male with the same credentials would be making. For the next generation the US is simply a first-rate Third World economy.

May 30 2014 at 9:17 AM Report abuse rate up rate down Reply
vlady1000

Well I am the class of '81. Back then they said figure 11-12% return, got 8%. So will today's 8 actually be more like 5-6%? And yes I make more today, but if you adjust for inflation it is about the same as I was making at 26, but with less benefits now. My father was an engineer, so am I. inflation adjusted he made 20% more than I and with a pension and health coverage when retired. The engineers coming out of school today make less than I did, inflation adjusted. I think only pro athletes have out paced inflation in the last generation. Good luck kids!!!

May 21 2014 at 8:55 PM Report abuse +1 rate up rate down Reply
drbobdez

It is hard to write an article like this because the generalizations always leave room for knit-picking the basic assumptions. At its core it says, "pay yourself first," and that is good advice (shared by several comments below). Annualized returns are going to be affected by when one enters the market and the composition of the investment portfolio. For example, if you reach retirement age this year and started investing at age 25 your average return on the Dow would be 6.92%, the S&P 6.84%, and the NASDAQ 8,7%. Had you waited until 32, the average annual returns would be 9.06%, 8.67%, and 10.25% respectively. These returns would keep you well ahead of average annual inflation rates for the same periods. The only thing not mentioned, and worthy of consideration is to DRIP (dividend reinvestment program) dividend paying stocks. You will pay income taxes on the dividends, but over a forty year period they can have a profound positive impact on the ultimate value of your holdings. When the market is down, your reinvested dividends will buy more shares, when the market is up, less. In the long run, however, the increase in shares and and values is well worth deferring gratification. DRIPs are even more attractive when applied to tax-free investments (municipal bonds and funds).

May 21 2014 at 1:19 PM Report abuse +1 rate up rate down Reply
1 reply to drbobdez's comment
Valerie

@ drbobdez --- The big negative feature of DRIP investing is that it creates a huge tax basis nightmare with the reinvested dividends and the fractional share holdings. This is why I avoid this type of investing.

Paying a big fee to an accountant/tax preparer to figure out "how much" you owe the IRS if you sold any of your DRIP share investments will seriously impact any profits you might have made.

May 22 2014 at 8:56 AM Report abuse rate up rate down Reply
1 reply to Valerie's comment
drbobdez

@Valerie — Since you pay taxes on the dividends that are reinvested—in the tax year the dividend is received— your purchases in a DRIP are post-tax funds. After that, the reinvestment is treated as any other share purchase. The base is what you paid for the shares at the time of purchase, and the gain (or loss) is the difference between the sale price and the base. It is not really all that complicated. The sales profit (or loss) is either income or capital gain (loss) depending on how long you held the shares. Dividend distributions constitute a taxable event, what you choose to do with the residual is treated as any other investment.

May 22 2014 at 2:42 PM Report abuse rate up rate down
cvanac8550

Wow all the sage advice here..........real estate ,bonds, cleaning toilet bowls, stocks ,mutual funds.........and the number one best advice, "Gold, Silver, and precious metals"...give me a break.........

May 21 2014 at 1:02 PM Report abuse -3 rate up rate down Reply
2 replies to cvanac8550's comment
mac2jr

Try Reading.... "It is true that many have become wealthy by investing in the Stock Market, or in Gold, Silver, and other precious metals. And many have also LOST all with these types of investments, as the market can change on a second's notice due to something that happens, or is reported to happen, or is rumored to happen domestically or internationally. "

May 21 2014 at 3:36 PM Report abuse rate up rate down Reply
mac2jr

So, what is your advice on a 'best investment'?

May 21 2014 at 3:37 PM Report abuse rate up rate down Reply
Socho Ekon

Never ever listen to a financial advisor... Chances are, they don't know what the hell they are talking about when it comes to investing and are just mutual fund salesmen that is using the Cribb Notes version of the book "The Intelligent Investor, a guide to value investing". Second, class of 2014, a million dollars in your lifetime at the current rate of inflation isn't going to be squat.. A person could take out a mortgage on the right $200,000 home today and in 30 years it will sell for $1 million dollars. But, don't expect to be paying $3.50 a gallon for gas when it does. The one thing the story got right though, is to live like a cheapskate. Although, some of the people I met in Silicon Valley who snapped on me when I said it is best to wait 3-4 years before buying technology to get a discounted price would say that if everyone did that, then there would be no tech companies developing new technology.. In other words, if everyone in America suddenly started living like me and going cheap, there would be no nice restaurants anymore.. No luxury cars, no cruise ships, no jewelry stores, musicians would no longer get paid for playing, professional sports would be eliminated, and so on. All the extras available to us in life would cease to exist... So, don't live like a broke college student... Live where you spend 80% of what you make and try to avoid debt at all cost. Let's not destroy society with a popular movement called penny smart and dollar stupid.

May 21 2014 at 12:15 PM Report abuse rate up rate down Reply
baldbiker2

Wow, great advice,,,however, first,,,,,you need a job to get started.

May 21 2014 at 12:01 PM Report abuse +2 rate up rate down Reply
tsr5112

Class of 2014. How you can become a multimillionaire. Become a politician. Get elected then lie, cheat, steal, bribe, and lobby your soul into untold riches. Just keep your pants up and all this could be yours. Not enough money? Become a Republican.

May 21 2014 at 11:18 AM Report abuse +1 rate up rate down Reply
2 replies to tsr5112's comment
baldbiker2

The good news is that apparently people have a better chance of becoming a millionaire if they are a republican. So, my advice is vote republican. Apparently, if you vote democrat, you make less money, which is fine if you want to make less money.

May 21 2014 at 11:59 AM Report abuse -2 rate up rate down Reply
mac2jr

The career last about two to six years, cost into the tens of millions of people's money, and if you get to be president by the age of 48 you will be GRAY by the age of 50 due to all the stupidity out there.

May 21 2014 at 3:39 PM Report abuse +2 rate up rate down Reply
mac2jr

Bonds:
A savings bond is usually a safe instrument that pays reasonably well over a period. Most governments from your local government to your state government and the federal government sell Savings Bonds. These bonds are used to finance roads, bridges, buildings, parks, whatever and usually have a fixed interest payment rate and a maturity date. Example, a bond issue for a new bridge may have a 6% interest and a maturity date of 10-years from date of issue.

Government savings bond are usually safe as long as the government is in existence, and since most governments are long-term, these bonds can be a very good investment.

May 21 2014 at 10:09 AM Report abuse -2 rate up rate down Reply
1 reply to mac2jr's comment
Socho Ekon

get back to cleaning toilets and leave the investing advice to someone that knows what they are talking about....

May 21 2014 at 12:18 PM Report abuse -2 rate up rate down Reply
1 reply to Socho Ekon's comment
mac2jr

And you have thus far made how many millions?

May 21 2014 at 3:40 PM Report abuse +1 rate up rate down
mac2jr

Investment in Property:
Many people have done well by investing in Real Estate, and many have lost everything he or she has by investing in Real Estate. Again, if it sounds to good to be true, it probably is not something in which you want to invest. Rental properties are subject to the renter's and you need to talk to an owner of a rental property, most will have one or more 'Horror' stories about how tenants have fled without paying in the middle of the night, destroyed property, or have sub-leased to someone that you do not approve of, and want out.

If you are the living within the complex and have hands-on ability to monitor the tenants, then the investment in rental property may be safe, i.e., you live in one-half of a duplex. But, be aware that you do need an attorney and a very good rental agreement contract.

Investment in vacant land may be a good investment as it cannot be easily destroyed by tenants as there should be no tenants. But there are always someone that can cause problems for you, such as an oil company taking your property with Emanate Domain for a pipeline, or a local government passing a moratorium on building on the property. The best investment in land is in the home in which you live, and the office or office building in which you have based your business.

Now, talk to your insurance agent about how to protect your home or other property from government attachment in the event that you become a 'ward of the state', i.e., on Medicaid or other social programs due to age, injury, or sickness. Additionally, talk to your title company about this, there are titles that can reduce the risk of loss.

May 21 2014 at 10:08 AM Report abuse -1 rate up rate down Reply
2 replies to mac2jr's comment
Socho Ekon

oh yes, micromanage an apartment complex and chain yourself down as a slave master.... what a way to live.

May 21 2014 at 12:19 PM Report abuse +2 rate up rate down Reply
1 reply to Socho Ekon's comment
mac2jr

Ex brother-n-law does just that, and is worth about $4,500,000 at this time.. You much are you worth?

May 21 2014 at 3:41 PM Report abuse rate up rate down
vlady1000

My rental's ROI make 8% look like a failure. Have better tax advantages and income is pretty well inflation protected too. More work than my Wall Street stuff, but I have more control , more prodictable, and less risk. To me, well worth the extra work

May 21 2014 at 10:39 PM Report abuse +1 rate up rate down Reply
mac2jr

Stock, Gold, Silver, and other investments:
It is true that many have become wealthy by investing in the Stock Market, or in Gold, Silver, and other precious metals. And many have also LOST all with these types of investments, as the market can change on a second's notice due to something that happens, or is reported to happen, or is rumored to happen domestically or internationally.

One type of investment is the Mutual Fund, which is a 'grouping' of various stock, or precious metals, or other investment securities. The Mutual Fund is safer than an individual stock or other single investment as it, the Mutual Fund contains a variety that although one part may lose money, the other parts remain the same or gain money, thus the overall value of the fund is somewhat protected. But, like all investments, a human is involved and human's make mistakes and may not always understand the 'ins-and-outs' of the market. Thus, one must consider the risk of making any investment, and act accordingly.

The biggest problem with investments is 'Greed', your greed, and your wanting to maximize your investment profits, which will usually lead to your loss of assets in the long-haul. The old saying, "If it sounds to good to be true, it is probably to good to be true". You should only invest the amount of money that you are comfortable LOSING, and never invest on borrowed or future money, or invest the mortgage money in the 'hope' of paying off the house.

See http://www.sec.gov/investor/pubs/beginmutual.htm for more information.

May 21 2014 at 10:06 AM Report abuse -2 rate up rate down Reply
2 replies to mac2jr's comment
Socho Ekon

like I said, never take advice from a mutual fund salesman.

May 21 2014 at 12:20 PM Report abuse +1 rate up rate down Reply
Valerie

@mac2jr --- Gold and silver are NOT investments. They are commodities, which are volatile and always subject to losses. Purchase these at your own risk. Silver has a track record of taking 50 years to regain its' top price. Do you have a 50 year time horizon to wait this out???

The apocalyse doomsday survival crowd is big on screaming "Buy Gold!!! Buy Silver!!! Cash is Trash!!! Personally, I would not take "investment advice" from any doomsday whacko.

May 22 2014 at 8:47 AM Report abuse rate up rate down Reply