Financial returns have gone to hell. Bond yields are evaporating, money market returns are zero, and stocks have gone negative more than most politicians. We're in an investment desert, with the prospect of retirement a cruel mirage. If you manage to retire, you fear that you'll run out of money before you run out of time on this planet. That would leave you with only Social Security. But the political right will ambush Social Security and if you plant a garden to survive, the white tail deer swarming America's suburbs will eat your food supply before you can harvest it. You're screwed. Unless you find a way to boost your net worth.
The most reliable way to build up your net worth is to save steadily, week after week, month after month, year after year. Then, if you compound your earnings (assuming there are earnings to compound), you leverage your returns (see http://blogger.uncleleosden.com/2009/09/if-you-love-compounding-compounding.html). How can you achieve a steady flow of cash into your saving and investment accounts? Here are a few ideas.
Pay yourself first. Participate in any 401(k) or other employer-sponsored retirement program available to you. A portion of your paycheck will be automatically credited to your retirement account before you can spend it. You can also arrange with your bank to automatically transfer each month a fixed amount from your checking account to a saving account, IRA account, or mutual fund account. The key to saving is to live below your means. Paying yourself first is a great way of doing that.
Shop for Loss Leaders. Many stores offer extra low prices on select items to get you in the door, in the hope that you'll pay full freight for other items. Grocery stores are notorious for advertising loss leaders, and nailing you with high prices on staples. A way around this pricing scheme is to identify a cluster of grocery stores that are within a few miles of each other, so that travel costs aren't a big factor, and buy the loss leaders at each. You'll probably find that different stores often have different items on sale each week. It's hard for stores to win the loss leader game if they mark down the same items. So they frequently mark down different items to avoid competing directly against each other. If the stores are close to each other, you can drive to all of them easily and buy the bargains. When you frequently shop the same cluster of stores, you'll also learn how their regular prices differ. One store will usually have cheaper meat, another cheaper bread, a third cheaper milk. With this knowledge, you can save even more. While this strategy may not work well in rural areas and urban areas poorly served by the big supermarket chains, it does work for the majority of Americans who live in the suburbs.
Cheap gas. There are websites that report on gas prices in your neighborhood. None have complete information. But take advantage of the bargains you find. Since gas is an important monthly expense for most Americans, the savings add up.
Drive like a millionaire. Studies of the well-to-do report that the typical millionaire drives, not a luxury or sports car, but a standard sedan or mid-range SUV. Most millionaires became well-off because, among other things, they didn't burn up their income on big depreciating assets like expensive cars. Buy as much car as you need. A family of five or six obviously needs more vehicle than a single person. But don't confuse looking prosperous with being prosperous. Choose a Honda over an Acura, or a Ford over a Lincoln, and you'll look more like a typical millionaire.
Eavesdrop on your fellow passengers. We all know that mass transportation will usually be cheaper than driving, and it's kinder to the environment. Okay, strap hanging with a lot of other people trying not to look like sardines may seem like eating bologna with processed American cheese food on white. But view the glass as half full. Almost every day in public transportation, you can hear other people over-sharing too loudly on their cell phones. You learn what idiotic, messed up, contorted, perverse, and incredibly lunatic lives they have, and you will be amused, entertained, appalled, disgusted, and grateful. Grateful because however boring, unrewarding, difficult, and warped your life may seem, someone else has traveled farther down the road toward disaster than you. Don't worry about being an eavesdropper; they voluntarily, if perhaps unwittingly, made spectacles of themselves. Laugh while you bank your savings in commuting costs.
Veg out for free. If you're going to rot your brain sitting in front of a television, consider what you like to watch and find the cheapest way to get it. Check out resources on the Internet. A lot of cable shows can be accessed through your PC for free or a lot less than monthly cable charges. If you are a public television fan, many PBS stations post copies of shows on their websites that you can access later without charge if you miss the broadcast. Broadcast TV still does exist, and there are more channels now than ever. Of course, if you need to slobber on the sofa with shopping shows playing nonstop, cable may be your best option. But you'd be spending money in order to spend money. That isn't the way to get rich.
A pox on credit card interest. You won't enrich yourself by enriching banks. As interest rates for savers have fallen, interest charges for credit card customers have risen. Do you think someone might be getting shafted? If you carry over a monthly balance on your credit card, that someone can be found in the mirror.
Make Your Life Fit Your Closet Space. If you look at the typical American home (be it a single family house, a condo or an apartment), you'll notice that the closet space seems rather limited. Think about your friends and family--most or all of them have filled their closets and other storage space to 150% of capacity, and then stacked stuff up against walls and in other stray spaces. Most of America's housing stock was built in the 1940s, 1950s, 1960s and 1970s, with enough closet space for the needs of the times. It's only been in the last few decades that the warehouse-size walk-in closets found in newer suburbs have felt barely adequate. During the halcyon years of the 1950s and 1960s, when Americans thought of themselves as glowingly prosperous, people lived with a lot less than they have today and felt damn good about it. You can save a lot of money by making your life fit your closet space. Buy what you need. Buy what you want. But don't make a landfill of your closet space.
Showing posts with label millionaire. Show all posts
Showing posts with label millionaire. Show all posts
Wednesday, August 17, 2011
Wednesday, June 22, 2011
Avoid Vanishing Along With the Rest of the Middle Class
Statistics show that the richer are getting richer while middle class incomes stagnate. Income and net worth are increasing, sometimes dramatically, for the top 1% and 10% in America, while median incomes barely keep up with inflation (or don't). Mathematically, this means that the middle class are getting poorer relative to the well-off. But most middle class people don't need to see the math--they already know from their end of the month checkbook balancing frenzy that they're getting poorer. Add the strident calls from conservatives to slash Social Security, Medicare, unemployment compensation and other elements of the social safety net, and the middle class is starting to understand how the bison felt when hunters with breech loading rifles invaded the Great Plains 140 years ago.
But people--at least those who aren't herd animals--may have a way out. Let's assume you live in a household with $50,000 in annual income, which is about the median. Put $5,000, or 10%, annually into a 401(k) account that has a 4% employer match ($2,000 per year) over 40 years of work, invest in a diversified portfolio that generates a 6% return compounded annually (a modest amount by historical standards), and you'll have $1,080,000.
If you adjust this $1,080,000 for inflation of 3% per year, you'll find that it's worth the equivalent of $320,355 in today's dollars. But you can get around the inflation problem by increasing the amount you save each year by the inflation rate. Since most people's incomes tend to keep pace with inflation--even middle class incomes, although just barely--you can bump your retirement savings up pretty much in line with inflation. (And note that salary increases would also increase the dollar amount of the 4% employer match.) By increasing your contributions for inflation, you'll end up with the inflation adjusted equivalent of about $1,000,000 after 40 years. If you have a 401(k) without an employer match, or one with a smaller match, save more in some other account to make up the difference.
But people--at least those who aren't herd animals--may have a way out. Let's assume you live in a household with $50,000 in annual income, which is about the median. Put $5,000, or 10%, annually into a 401(k) account that has a 4% employer match ($2,000 per year) over 40 years of work, invest in a diversified portfolio that generates a 6% return compounded annually (a modest amount by historical standards), and you'll have $1,080,000.
If you adjust this $1,080,000 for inflation of 3% per year, you'll find that it's worth the equivalent of $320,355 in today's dollars. But you can get around the inflation problem by increasing the amount you save each year by the inflation rate. Since most people's incomes tend to keep pace with inflation--even middle class incomes, although just barely--you can bump your retirement savings up pretty much in line with inflation. (And note that salary increases would also increase the dollar amount of the 4% employer match.) By increasing your contributions for inflation, you'll end up with the inflation adjusted equivalent of about $1,000,000 after 40 years. If you have a 401(k) without an employer match, or one with a smaller match, save more in some other account to make up the difference.
If you don’t have access to a 401(k) or similar plan, then this plan for a 25-year old could consist of saving the $5000 permitted per year in an IRA account until age 50 and then the $6,000 permitted per year for older folks until age 65. Increase your savings for inflation. Assuming a 6% return compounded annually, you’d have $797,084 after 40 years (or the inflation adjusted equivalent if you increase your saving in line with inflation). The amount is smaller because there is no employer match in an IRA. But if you save a bit more each year in another account or work a few years longer, you'll probably be a millionaire.
Only some 2.5% of the U.S. population has $1,000,000 in investable assets. But at least half the population, including many middle class households, have the potential to become millionaires. You have to be scrupulous about saving, and luck is a factor. Serious illness, disability, or other medical problems, aged parents who are unprepared for retirement, divorce, and other difficulties can blow up a financial plan. But a lot of folks who have the potential to be well-off in their golden years throw that chance away on big houses, cars, and TVs, nice vacations, frequent restaurant meals, fine clothes and other lifestyle enhancements. There's nothing inherently wrong with living large now, if you understand the consequences. But if you want to escape the multitude of middle class people being driven over a cliff by economic inequality, then think for yourself, act on your own, and separate yourself from the herd.
For more on how to build wealth, see the following: (a) http://blogger.uncleleosden.com/2007/05/how-to-become-millionaire.html, (b) http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html, (c) http://blogger.uncleleosden.com/2010/07/how-to-think-about-saving.html, (d) http://blogger.uncleleosden.com/2010/11/how-much-do-you-need-for-retirement.html, and (e) http://blogger.uncleleosden.com/2011/03/how-to-avoid-running-out-of-money-in.html.
If you think you really can't save, then take a look at http://blogger.uncleleosden.com/2011/01/hope-for-financially-lost.html.
Sunday, June 7, 2009
Death of a Millionaire
(The following is an imaginary conversation that, to our knowledge, has never taken place at the Metropolitan Correctional Center in Manhattan.)
Fred sat down on the bench and watched the other prisoners exercising. At the age of 60, he only felt the need to stretch his arms and legs a bit. Beyond that, exercise was just another thing he had lost interest in. Especially now, when after three days in prison, the stark reality of confinement was sinking in.
The older man on the other end of the bench turned and gave Fred a half-smile.
“How are you?” he asked.
“I’ve been better,” said Fred.
The older man nodded and said, “I know what you mean.”
Both men fell silent. Since things at the Metropolitan Correctional Center didn’t change much from day to day, there wasn’t much to talk about. But Fred figured that maybe this older guy, who seemed rather congenial, might be helpful.
“Say, do you know how to get something to read?” asked Fred.
“If you can find a guard who likes you, you might be able to spend extra time at the library,” said the older man.
“I’ll have to work on being pals with the guards, I guess,” said Fred. “I don’t find looking at walls very entertaining.”
“They’re not good conversationalists,” agreed the older man. “I tried looking out the window. It’s small and the bars get in the way. But I gave bird watching a try.”
“How did that go?” asked Fred, desperate for any diversion.
“After you learn to spot the pigeons, sparrows and the occasional hawk, there wasn’t much to see. I saw a seagull once or twice, and maybe a crow. That was the high point of bird watching for me.”
“I try to follow the little bit of the news I can learn,” said Fred. “But it all seems kind of irrelevant. In this place, it doesn’t matter what I think or feel about anything.”
“Oh, now, don’t think that way, uh, . . . what’s your name?”
“Fred.”
“Hi, Fred. I’m Bernie.”
Fred looked at the extended hand, and after a moment gave a brief squeeze. It was funny how in prison social customs like shaking hands were still followed. Never before in his life had it seemed like so little mattered. But decorum remained.
“Listen, Fred, you can’t be negative. You have to keep your chin up, even in a place like this.”
Fred gave Bernie a puzzled look. But the older man kept the half-smile on his face, and gestured upwards with his right hand, as if he were lifting something.
“You’re not kidding,” said Fred.
“No. I always try to look at the bright side of things,” said Bernie.
Fred turned away, and slowly said, “So did I, once.”
“What happened?”
“I’ve been spending a lot of time thinking about that,” said Fred. “I still don’t know exactly what happened. I thought I was doing everything right. I mean, not exactly everything. I started college, but then dropped out after a couple of years. That was in the late 60s, and I was kind of rebellious, a free thinker. I dabbled in the counterculture. Went to a commune, but that was too weird so I left within weeks. I got a bunch of dead end jobs, lived in cheap apartments, and had a bunch of girlfriends; didn’t keep any of them for long. I got by, until I got tired of just getting by. Then I went back to college and earned a bachelors degree.”
“Good for you,” said Bernie. “You see, finishing college is an investment for the future, and investing is an act of optimism. You were an optimist when you did that.”
“Except that the economy was going to hell. That was in the 70s, when we had stagflation and malaise and disco.”
“I’m glad to say I never got into disco,” said Bernie.
“I'm sorry to say I did. The 70s were the Me Decade, if you remember,” said Fred.
“I don’t remember that,” said Bernie. “I was busy trying to build a business and support a family.”
“I could see job opportunities for college grads weren’t good, so I went to law school,” said Fred.
“That’s great. You became a professional man,” said Bernie.
“Yeah. I became a lawyer. I did well in school, so a big law firm hired me. They paid a lot, but I had to work day and night and weekends. That and the office politics got old real fast. So I took a job in a small firm where the hours and people were sane. Then I got married and bought a house in the suburbs. Had two kids, two cars, one dog and one cat. My life became normal.”
“Sounds like everything was going well,” said Bernie.
“It was,” said Fred. “My marriage was happy, the kids were smart and well-behaved, I became a partner at the firm and we traded up to a larger house in a better school district. Everything was going well. But, as I look back, I realize I had stopped thinking.”
“How so?” asked Bernie.
“I just began doing what everyone else was doing,” said Fred. “Going after a fancier lifestyle, trying to get all the symbols of success—big house, big cars, private schools for the kids, vacations in Europe, all that stuff. I even began to collect art—primitive folk art because I didn’t want to compete against the hedge fund guys. I borrowed against my house--for cars, tuition, clothes, you name it. Everyone was doing it and with housing values going up every year, it seemed like a winning bet. I didn’t forget about my retirement. I had a retirement plan, and invested in stocks, just like all the advisers told us. “
“Then, it all fell apart,” Fred continued. “My retirement plan took a beating when tech stocks collapsed in 2000. I thought my house would save me, and for a while it did. But then Wall Street blew up the housing market with these derivatives, which I still don’t understand. After that, the rest of the stock market collapsed, taking my retirement plan with it. The economy went to hell, and law business with it. My partners and I couldn’t agree how to salvage the firm, and it just fell apart. At my age, you can’t get anyone else to hire you. So I was unemployed and likely to stay that way. I couldn’t pay the mortgage and the home equity loans, so the house went into foreclosure. I had to move into a cheap apartment. It was like my life had gone full circle and I was 22 again, using an orange crate for a coffee table.”
“Life is funny,” agreed Bernie. “You can be king of the world one day and here at MCC the next.”
“The damndest thing is I was only doing what everyone else was doing,” said Fred. “I got an education and built a career. I bought the house in the suburbs and funded the retirement plan. Everyone said you had to be in stocks, so I put my money, and faith, in stocks. Between the house and the stocks, I was a millionaire just a few years ago.”
“Congratulations. You had the American Dream,” said Bernie.
“And then lost it. For reasons I still can’t wrap my head around. I mean, the Wall Street banks and hedge funds didn’t want the markets to collapse. How could they have done all the crazy stuff they did? The regulators didn’t want the chaos and panic they now have to deal with. How could they have let things run amok? I’d like to blame somebody besides myself. I only did what all these smart experts said I should do.”
“You shouldn’t blame yourself,” said Bernie. “A lot of things are out of your control.”
“I kind of went out of control. I went to Washington and began screaming outside the White House.”
“Is that what you’re in here for? Threatening the President?” asked Bernie.
“No. When the guards found out I was just mad about losing my house, my job and my retirement savings, they took me to a shelter for the homeless, where I got a hot meal and a place to stay for the night. I couldn’t stay angry after that, so I came back to New York. But I got mad again in New York and went to the Federal Reserve Bank in Manhattan. I began screaming at the regulators and blockaded some of their limousines as they were trying to leave.”
“So you’re in here for interfering with the operations of the federal government?” asked Bernie.
“No. When a Fed staffer found out I was pissed off because I was broke and out of work, he took me to a deli for lunch and listened to me complain for two hours. After he was so nice, I couldn’t stay mad at the regulators.”
“So how come you’re here?” asked Bernie.
“I regressed. I went back to being 22. With no job, no house and no money, I was in the same place I had been when I was 22. The millionaire me was gone forever. I did a juvenile thing. I took a picture of my bare ass, loaded it onto my computer and e-mailed it to every bank, mortgage lender, brokerage firm, investment adviser and anyone else who had any connection to my now ruined finances. I must have sent it to 50 places. The FBI arrested me and charged me with 50 counts of Internet porn.”
Bernie’s half-smile grew ever so slightly wider. “You must have gotten some satisfaction from doing that.”
“It was a childish thing to do, but, yes, I did feel better,” said Fred. “I’m still a bit rebellious, a bit of a free thinker.”
“I think you’ll get out pretty soon because you’ll have the sympathies of the judge and jury,” said Bernie.
“Maybe so. Then, I’ll have to figure out what to do. One thing I know is I have to start thinking for myself and stop doing things just because everyone else is doing them. With my working life almost over, and the financial and real estate markets a mess, I’ll never be a millionaire again. I have to find a new focus to life, maybe do something for the homeless or disadvantaged.”
“Attaboy, Fred. That’s the way to think. Optimism makes the world go around,” said Bernie.
“Why are you so cheery?” asked Fred. “You’ll never get out of prison.”
Bernie’s half-smile disappeared abruptly.
“I’m sorry,” said Fred. “I realized who you are when you told me your name is Bernie. You’re the guy that operated a $64 billion Ponzi scheme. They’ll never let you out.”
“I’ve always been an optimist,” said Bernie. “I had to be one, to start a firm in a cutthroat place like Wall Street. Then, when I began stepping over the line, I had to believe that somehow things would get better, I would be able to straighten things out, and make everyone whole. Later, when I realized that I would never be able to unravel things, I had to hope that I would be able to keep juggling all the balls and somehow not get caught. Most of the time, I was right to be optimistic. The markets kept going up, and my investors were like you—they didn’t really think about things. They just did what everyone else was doing. It was a helluva time while it lasted.”
Fred sat down on the bench and watched the other prisoners exercising. At the age of 60, he only felt the need to stretch his arms and legs a bit. Beyond that, exercise was just another thing he had lost interest in. Especially now, when after three days in prison, the stark reality of confinement was sinking in.
The older man on the other end of the bench turned and gave Fred a half-smile.
“How are you?” he asked.
“I’ve been better,” said Fred.
The older man nodded and said, “I know what you mean.”
Both men fell silent. Since things at the Metropolitan Correctional Center didn’t change much from day to day, there wasn’t much to talk about. But Fred figured that maybe this older guy, who seemed rather congenial, might be helpful.
“Say, do you know how to get something to read?” asked Fred.
“If you can find a guard who likes you, you might be able to spend extra time at the library,” said the older man.
“I’ll have to work on being pals with the guards, I guess,” said Fred. “I don’t find looking at walls very entertaining.”
“They’re not good conversationalists,” agreed the older man. “I tried looking out the window. It’s small and the bars get in the way. But I gave bird watching a try.”
“How did that go?” asked Fred, desperate for any diversion.
“After you learn to spot the pigeons, sparrows and the occasional hawk, there wasn’t much to see. I saw a seagull once or twice, and maybe a crow. That was the high point of bird watching for me.”
“I try to follow the little bit of the news I can learn,” said Fred. “But it all seems kind of irrelevant. In this place, it doesn’t matter what I think or feel about anything.”
“Oh, now, don’t think that way, uh, . . . what’s your name?”
“Fred.”
“Hi, Fred. I’m Bernie.”
Fred looked at the extended hand, and after a moment gave a brief squeeze. It was funny how in prison social customs like shaking hands were still followed. Never before in his life had it seemed like so little mattered. But decorum remained.
“Listen, Fred, you can’t be negative. You have to keep your chin up, even in a place like this.”
Fred gave Bernie a puzzled look. But the older man kept the half-smile on his face, and gestured upwards with his right hand, as if he were lifting something.
“You’re not kidding,” said Fred.
“No. I always try to look at the bright side of things,” said Bernie.
Fred turned away, and slowly said, “So did I, once.”
“What happened?”
“I’ve been spending a lot of time thinking about that,” said Fred. “I still don’t know exactly what happened. I thought I was doing everything right. I mean, not exactly everything. I started college, but then dropped out after a couple of years. That was in the late 60s, and I was kind of rebellious, a free thinker. I dabbled in the counterculture. Went to a commune, but that was too weird so I left within weeks. I got a bunch of dead end jobs, lived in cheap apartments, and had a bunch of girlfriends; didn’t keep any of them for long. I got by, until I got tired of just getting by. Then I went back to college and earned a bachelors degree.”
“Good for you,” said Bernie. “You see, finishing college is an investment for the future, and investing is an act of optimism. You were an optimist when you did that.”
“Except that the economy was going to hell. That was in the 70s, when we had stagflation and malaise and disco.”
“I’m glad to say I never got into disco,” said Bernie.
“I'm sorry to say I did. The 70s were the Me Decade, if you remember,” said Fred.
“I don’t remember that,” said Bernie. “I was busy trying to build a business and support a family.”
“I could see job opportunities for college grads weren’t good, so I went to law school,” said Fred.
“That’s great. You became a professional man,” said Bernie.
“Yeah. I became a lawyer. I did well in school, so a big law firm hired me. They paid a lot, but I had to work day and night and weekends. That and the office politics got old real fast. So I took a job in a small firm where the hours and people were sane. Then I got married and bought a house in the suburbs. Had two kids, two cars, one dog and one cat. My life became normal.”
“Sounds like everything was going well,” said Bernie.
“It was,” said Fred. “My marriage was happy, the kids were smart and well-behaved, I became a partner at the firm and we traded up to a larger house in a better school district. Everything was going well. But, as I look back, I realize I had stopped thinking.”
“How so?” asked Bernie.
“I just began doing what everyone else was doing,” said Fred. “Going after a fancier lifestyle, trying to get all the symbols of success—big house, big cars, private schools for the kids, vacations in Europe, all that stuff. I even began to collect art—primitive folk art because I didn’t want to compete against the hedge fund guys. I borrowed against my house--for cars, tuition, clothes, you name it. Everyone was doing it and with housing values going up every year, it seemed like a winning bet. I didn’t forget about my retirement. I had a retirement plan, and invested in stocks, just like all the advisers told us. “
“Then, it all fell apart,” Fred continued. “My retirement plan took a beating when tech stocks collapsed in 2000. I thought my house would save me, and for a while it did. But then Wall Street blew up the housing market with these derivatives, which I still don’t understand. After that, the rest of the stock market collapsed, taking my retirement plan with it. The economy went to hell, and law business with it. My partners and I couldn’t agree how to salvage the firm, and it just fell apart. At my age, you can’t get anyone else to hire you. So I was unemployed and likely to stay that way. I couldn’t pay the mortgage and the home equity loans, so the house went into foreclosure. I had to move into a cheap apartment. It was like my life had gone full circle and I was 22 again, using an orange crate for a coffee table.”
“Life is funny,” agreed Bernie. “You can be king of the world one day and here at MCC the next.”
“The damndest thing is I was only doing what everyone else was doing,” said Fred. “I got an education and built a career. I bought the house in the suburbs and funded the retirement plan. Everyone said you had to be in stocks, so I put my money, and faith, in stocks. Between the house and the stocks, I was a millionaire just a few years ago.”
“Congratulations. You had the American Dream,” said Bernie.
“And then lost it. For reasons I still can’t wrap my head around. I mean, the Wall Street banks and hedge funds didn’t want the markets to collapse. How could they have done all the crazy stuff they did? The regulators didn’t want the chaos and panic they now have to deal with. How could they have let things run amok? I’d like to blame somebody besides myself. I only did what all these smart experts said I should do.”
“You shouldn’t blame yourself,” said Bernie. “A lot of things are out of your control.”
“I kind of went out of control. I went to Washington and began screaming outside the White House.”
“Is that what you’re in here for? Threatening the President?” asked Bernie.
“No. When the guards found out I was just mad about losing my house, my job and my retirement savings, they took me to a shelter for the homeless, where I got a hot meal and a place to stay for the night. I couldn’t stay angry after that, so I came back to New York. But I got mad again in New York and went to the Federal Reserve Bank in Manhattan. I began screaming at the regulators and blockaded some of their limousines as they were trying to leave.”
“So you’re in here for interfering with the operations of the federal government?” asked Bernie.
“No. When a Fed staffer found out I was pissed off because I was broke and out of work, he took me to a deli for lunch and listened to me complain for two hours. After he was so nice, I couldn’t stay mad at the regulators.”
“So how come you’re here?” asked Bernie.
“I regressed. I went back to being 22. With no job, no house and no money, I was in the same place I had been when I was 22. The millionaire me was gone forever. I did a juvenile thing. I took a picture of my bare ass, loaded it onto my computer and e-mailed it to every bank, mortgage lender, brokerage firm, investment adviser and anyone else who had any connection to my now ruined finances. I must have sent it to 50 places. The FBI arrested me and charged me with 50 counts of Internet porn.”
Bernie’s half-smile grew ever so slightly wider. “You must have gotten some satisfaction from doing that.”
“It was a childish thing to do, but, yes, I did feel better,” said Fred. “I’m still a bit rebellious, a bit of a free thinker.”
“I think you’ll get out pretty soon because you’ll have the sympathies of the judge and jury,” said Bernie.
“Maybe so. Then, I’ll have to figure out what to do. One thing I know is I have to start thinking for myself and stop doing things just because everyone else is doing them. With my working life almost over, and the financial and real estate markets a mess, I’ll never be a millionaire again. I have to find a new focus to life, maybe do something for the homeless or disadvantaged.”
“Attaboy, Fred. That’s the way to think. Optimism makes the world go around,” said Bernie.
“Why are you so cheery?” asked Fred. “You’ll never get out of prison.”
Bernie’s half-smile disappeared abruptly.
“I’m sorry,” said Fred. “I realized who you are when you told me your name is Bernie. You’re the guy that operated a $64 billion Ponzi scheme. They’ll never let you out.”
“I’ve always been an optimist,” said Bernie. “I had to be one, to start a firm in a cutthroat place like Wall Street. Then, when I began stepping over the line, I had to believe that somehow things would get better, I would be able to straighten things out, and make everyone whole. Later, when I realized that I would never be able to unravel things, I had to hope that I would be able to keep juggling all the balls and somehow not get caught. Most of the time, I was right to be optimistic. The markets kept going up, and my investors were like you—they didn’t really think about things. They just did what everyone else was doing. It was a helluva time while it lasted.”
Tuesday, May 8, 2007
How to Become a Millionaire
So you want to become a millionaire? Here are a few ways, none of which involve calling an 800 number advertised on late night TV.
1. Save $15,000 a year in a 401(k) account (or an equivalent account, like the federal government's Thrift Savings Plan) for 26 years, and you will probably get there. We assume that your investments earn 7% a year. Since you're using a retirement account, your investment earnings will automatically compound. You should invest the account assets in a diversified mix of mostly stocks and some bonds (roughly 60% stocks and 40% bonds). Investing in a lifecycle or target date mutual fund would be a convenient way to get a diversified mix of assets. We also assume that you don't make any withdrawals or take any loans from the 401(k) account. (That way, your investment earnings will compound without interruption.)
If you want the inflation adjusted equivalent of $1 million, increase the amount you save each year by the rate of inflation. You'll probably be able to do this since incomes for most people tend to keep approximate pace with inflation over the long run. Even if your income doesn't always increase as much as the inflation rate, make sure your savings keep pace. Maybe you'll lose a little lifestyle, but you'll get better quality of sleep.
2. Save $10,000 a year in a 401(k) or equivalent account for 31 years. This is based on the same assumptions. Increase your savings annually by the inflation rate to maintain your buying power.
3. Save $7,500 a year in a 401(k) or equivalent account for 35 years. This is based on the same assumptions. Increase your savings annually by the inflation rate to maintain your buying power.
4. Save $5,000 a year in a 401(k) or equivalent account for 40 years. This is based on the same assumptions. Increase your savings annually by the inflation rate to maintain your buying power.
None of these methods will make you a millionaire quickly. But they don't require any special skills, an advanced degree, a bundle of stock options, or a winning lottery ticket. Anyone who is patient and saves steadily can get there. Most people who are well off accumulated their wealth bit by bit. It doesn't matter if you don't make a huge income. The tortoise wins this race, not the hare.
Tacky tacky: See the latest in legal advertising: http://www.nbc4.com/slideshow/news/13278632/detail.html. Is this a new low?
1. Save $15,000 a year in a 401(k) account (or an equivalent account, like the federal government's Thrift Savings Plan) for 26 years, and you will probably get there. We assume that your investments earn 7% a year. Since you're using a retirement account, your investment earnings will automatically compound. You should invest the account assets in a diversified mix of mostly stocks and some bonds (roughly 60% stocks and 40% bonds). Investing in a lifecycle or target date mutual fund would be a convenient way to get a diversified mix of assets. We also assume that you don't make any withdrawals or take any loans from the 401(k) account. (That way, your investment earnings will compound without interruption.)
If you want the inflation adjusted equivalent of $1 million, increase the amount you save each year by the rate of inflation. You'll probably be able to do this since incomes for most people tend to keep approximate pace with inflation over the long run. Even if your income doesn't always increase as much as the inflation rate, make sure your savings keep pace. Maybe you'll lose a little lifestyle, but you'll get better quality of sleep.
2. Save $10,000 a year in a 401(k) or equivalent account for 31 years. This is based on the same assumptions. Increase your savings annually by the inflation rate to maintain your buying power.
3. Save $7,500 a year in a 401(k) or equivalent account for 35 years. This is based on the same assumptions. Increase your savings annually by the inflation rate to maintain your buying power.
4. Save $5,000 a year in a 401(k) or equivalent account for 40 years. This is based on the same assumptions. Increase your savings annually by the inflation rate to maintain your buying power.
None of these methods will make you a millionaire quickly. But they don't require any special skills, an advanced degree, a bundle of stock options, or a winning lottery ticket. Anyone who is patient and saves steadily can get there. Most people who are well off accumulated their wealth bit by bit. It doesn't matter if you don't make a huge income. The tortoise wins this race, not the hare.
Tacky tacky: See the latest in legal advertising: http://www.nbc4.com/slideshow/news/13278632/detail.html. Is this a new low?
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