How to Become a Millionaire in a Paragraph or Less

While I’m waiting for some t’s to be dotted and some i’s crossed (that’s how the saying goes, right?) for the upcoming release of The Secret Room, I thought I’d share this bit of investing info. Now, will this method require some fiscal discipline? Absolutely; so if that’s an issue, this method could be a wee bit problematic. But for those willing to tighten the belt a notch or two, there are significant rewards to be reaped. I’ll elaborate a bit more afterwards, but here’s the summary:

Open a Roth IRA account. Then (this is the tough part) contribute $5000 to it each and every year. Allocate the funds as follows: 90% into an S&P 500 index fund that charges minimal fees (Vanguard has a good one), then take the remaining 10% and invest it into a short term treasure bond index fund (Vanguard has one of these as well). Rebalance once a year to these same percentages (btw, this method was originally recommended by Warren Buffett of Berkshire-Hathaway fame). Over the next thirty years or so, this should result in close to an average yearly return of about 10%, which translates into around one million dollars. And since it’s┬ábeing held in a Roth IRA fund, all profits and proceeds from same will be tax free.

The logic of this method is as follows. The overall stock market has averaged a return of between 8-10% over the past century or so. It dips and rises, but over the long haul performs as noted. What improves on that kind of performance is a bit of the sarcastic investment advice that’s grown whiskers to the ground, “Buy low, sell high”. Which is what the above method does. There are fewer things more stable than a US Treasury Bond, so relative to the S&P 500 it will either outperform or (more typically) underperform the S&P. By rebalancing, you will move money into the asset that’s priced to sell (buying low) from the one that is richly priced (selling high).

I’ll go into a bit more detail. Suppose that your Roth IRA fund, begun at the start of the year at 90% S&P index fund, 10% short term treasure bond fund, finishes the year at 88% S&P, 12% treasure bond (it was a bit of a down year for the market). By moving that 2% from the treasure bond into the S&P, you’re buying low, because history tells us that eventually the S&P will (unlike the South) rise again.┬áThen, when it does, you’ll have even more money in it that you had at the start. And if the year ends up 92% S&P, 8% treasury bond, you’ll be selling high, insuring profits should the market take a sudden downturn over the coming annum.

Admittedly this method demands two of the hardest things to come by, fiscal discipline and a long term outlook. Sorry about that. But sad to say, but there aren’t any quick and easy paths to wealth, no matter what those late night infomercials say. Just remind yourself that if it were easy, everyone would be doing it.