How to retire a millionaire is an age old question generations have asked themselves. So, what’s the easiest way to make a million? Have you ever dreamed of winning the lottery? Imagine leaving the office for the final time, booking a one way ticket to an exotic island – kicking off our shoes and walking onto the beach with a margarita in hand as we explore our new found wealth.

That’s the dream for many. Although for you it might be a mojito, an old fashioned or perhaps you’ll just be straight shooting Don Julio 1942.However, most people think that this is a pipe-dream and that the millionaire or multi-millionaire status is simply unattainable. For many it is but if you are reading this and ready to save an investment then you too can be a millionaire.

Defining The Millionaire Status

When we think about how to retire a millionaire, it’s important to distinguish what your definition of a millionaire is. You might think that this is a trivial question but the misconception of being a millionaire or even a multi-millionaire is actually something which has caused the majority of lottery winners to go bankrupt!

Here-in lies the problem, even when you hit one million pounds in net worth, you might not have achieved your definition of a millionaire. So you need to ask yourself: Do you want a million in cash to spend, all in one go or do you want to be ‘worth’ a million?

Whilst both are achievable, the former is exponentially harder. As a result it’s probably not attainable for 99% of people and 99% more difficult to sustain. There is a realistic way to attain and sustain the latter which we can talk more about.

However, building the millionaire lifestyle and having a net worth over £1,000,000 is entirely possible for everyday people like yourself. You might think that knowing how to retire a millionaire is endlessly complicated or that you need to:

• Invent the next big thing.
• Trade stocks with a 20% rate or return, or perhaps a 10,000% return like Nancy Pelosi.
• Work 60 hour weeks tirelessly until you drop.

Becoming A Millionaire Is Simple But Not Easy

The maths behind how to retire a millionaire is actually pretty simple and you just need to embrace the process behind it and the natural tide should take you there. Whilst you do need to put in a degree or effort upfront and continuously for a good number of years, you probably don’t need to work any harder than you are now.

The reason that the majority of people think that a net worth of a million is unattainable is because they do not know how to calculate a trajectory to get there. It’s pretty much impossible to understand how much you need to save in order to achieve millionaire status.

The reason for this is two-fold:

1. The mechanics of the stock market is misunderstood.
2. Compound interest is an unknown concept.

The Mechanics Of The Stock Market

Long story short, you need a better vehicle for your money than low-interest savings accounts to build your wealth. However, by buying into the ownership of a diverse array of domestic and internal companies (stocks) or simply loaning money to them (bonds) start to move the dial.

You don’t necessarily need to overcomplicate this or buy into a hedge fund or become a stock picking expert to do this. You can actually use a low cost index fund and all the complicated bits (e.g. fractional shares) will be done for you.

Buying assets such as stocks and bonds, allows you to become part of the economic growth and this allows your money to grow much quicker. Companies such as. Apple, Tesla, Google have experienced tremendous growth in the last decade and if you would have been invested in anything in a regular index tracker fund you’ll likely have captured this growth.

In fact, if you look at any US stock index you’ll see tremendous growth. For example, the Nasdaq-100 which is heavily concentrated with technology companies such as the above and has returned +552.24% in just 10 years. Meanwhile interest rates have remained almost non-existent, which encourages consumers to borrow more and spend more. By contrast, getting your savings to keep pace with the cost of living has been impossible with a savings account. (Although if you still want to try Monese offers market leading savings rates.)

How To Use Compound Interest To Your Advantange

How is your maths? I’m guessing it’s good enough to answer this simple maths question:

8 + 8 + 8 + 8 + 8

You got that right? It’s 40.

However, if I now ask you to calculate:

8 x 8 x 8 x 8 x 8

I imagine you found that exponentially more difficult. It’s just not intuitive for us to hold and compute those numbers in our head. I’ll admit I struggled there and had to pick up a calculator; it’s 32,768. When it comes to thinking about how much we would need to save to become a millionaire, it’s often the former style calculation that we use to get there. We think it must take £1,000,000 in savings which is pretty much impossible.

You would need to save £33,333 a year or £2,778 every month for the next 30 years to reach £1,000,000 in savings. Even if you extended your time-frame to 40 years that’s still £2,083 per month. With interest rates at all time lows, that’s not helpful.

However, if we approach this calculation in the 8 x 8 x 8 x 8 x 8 kind of way, you already know we’re going to get there much quicker. Using both the power of the stock market and compound interest, that’s exactly what we can do to get you to a million pounds in net worth. You use my Financial Independence Planner to plot your trajectory to financial freedom and see how compound interest will drive your portfolio to a million £ and beyond!

The Basic Maths Of How To Retire A Millionaire

Essentially, by using the average returns of the stock market, we can estimate what our returns might look like. Often we will think of returns that result from a poor, moderate or good market; this might look like 5%, 7% or 10% returns respectively. It seems counter-intuitive that the returns can be this good given all the market volatility but there is good evidence behind how this all works.

Then using something called a compound interest calculator we can speculate as to how much we might need to invest to reach one million pounds in returns. You can use my financial independence calculator to see how this works.

Say you started investing at age 25 and you invested £500 each month, assuming the market returned 10% on average each year, you would have £1,032,199.99 by the time you were 55. So you see, that by putting away a consistent amount in a portfolio of stocks that tracks something like the Nasdaq or the S&P 500 you too could become a millionaire. Find out how to do this here.

The investing strategy that requires almost zero effort

Investing in individual stocks can be a stressful and terribly inefficient way to build up a portfolio. It can also be costly in terms of fees and very tax inefficient (e.g. stamp duty, capital gains tax).However, I recently downloaded a share dealing app (get a free share when you download the app). This was just to dabble with individual shares for a little fun. Yes – being obsessed with all things investing, this is fun for me.

Although I enjoy researching new companies more than actually placing my bets. However, I truly had no idea how debilitatingly cautious and indecisive I can be when it comes to investing in individual stocks. Whilst this has been going reasonably well, it’s so much more time consuming and I worry 10x more about getting it wrong.

I have absolutely no qualms with throwing £600+ into my index fund based portfolio every month – no stress. This is because everything is done for me. I don’t have to think about what stocks to invest in, whether or not I can buy a full or fractional share, what the performance is of each company (i.e. p/e ratios, gross margins).

It’s just generally better to save some mental bandwidth and find a wealth manager to do all of this for you. You don’t have to give up total control over your investments, you can find a portfolio that suits your needs and goals. Ensuring you have this balance between knowing what you’re investing in and letting your wealth management company (i.e. Vanguard, Fidelity) take care of the rest, and can make investing substantially less stressful.

What happens if you wait to invest?

Getting into the game of investing is perhaps even more important than what you invest in. As we saw earlier with the compound interest calculations, it’s all about the snowball effect that comes with time in the market.

Building up that momentum is easier when you have time on your side. By contrast, dithering waiting around for the opportune moment to invest can have serious repercussions on your wealth building.

Let’s take a look at how much dithering for a few years can cost you. Let’s call it 10 years.

Say you wanted to ‘enjoy’ your 20s and delay investing until you were 35. What’s that going to cost you?

Those 10 years will cost you -£672,799.37!

Here’s the kicker, do you know how much extra you would have invested in those 10 years? £60,000.

That’s right. £60k over 10 years equates to an extra £673k! I know you can’t put a price on enjoying your youth, but it’s hard to imagine you could enjoy your 20s and early 30s to the tune of almost 700k.

How Much Do You Need To Invest To Become A Millionaire?

By modelling out our investments in this way, we can see that by starting by investing over a 30 year period, we only need to actually invest £180,000. The majority of the portfolio is then built by the compounding returns of the stock market, £852,199.99 to be precise.

You would never have though that the question of how to retire a millionaire could be solved by as little as £180,000. However, it’s not always easy to invest £500 a month when you’re in your 20s. For the most part I only managed about £400 for most of my 20s.

So, to be fair you might already be 30 or 35, but don’t worry all is not lost. You can always invest for a little longer or a little extra each month to make up for lost time. Let’s be honest, do you really need the full million? Half of that will probably do. However, from what we can see investing early, investing often and with the right strategy is crucial for standing the test of time. Therefore learning how to retire is a millionaire is less about knowledge and more about patience.

When you combine all of these things, you see that multiplying for money into the hundreds of thousands and even millions isn’t that complicated – it just takes time.

Where To Start Your Journey To One Million?

Start by downloading by myFinancial Independence Planner to plan your journey to one million or whatever financial goal you choose. The next step is selecting a fund but it can be a paradox of choice in this respect. The good news is that I have hand-selected8 funds that make my shortlist. These are a selection of low cost Vanguard and Fidelity index based funds.

Whilst there are these obvious institutions such as Vanguard and Fidelity, getting started with them can feel tedious. With lengthy forms and complex decisions at every turn. Luckily, there are a great selection of innovative Fintechs disrupting the wealth management market. They are making investing simple, accessible and just plain easy.

With one unique Fintech has recently launched an assets section of it’s app. Where you can move money from your cash account into assets. I managed to open up a MSCI World Index fund in no more than about 5 clicks. In plain English, the MSCI World Index is a collection of 1500 individual stocks from around the world bundled together.

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How To Retire A Millionaire: The Easiest Way To Make A Million

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How to retire a millionaire is an age-old question generations have asked themselves. So, what's the easiest way to make a million?

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Andrew

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Money Side Up

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