The most valuable asset in investing!

The best way to become a millionaire!

So everyone has read the different books about all the different ways to become a millionaire. What these books don't say is that they are full of it. You don't need to be a genius to get rich you just need 1 thing, which is the most valuable thing there is. Time! Time doesn't just grow trees but will also grow capital and it is your most valuable asset.

Lets make a demonstration of this. Imagine you have 2 alternatives:

Alternative 1: Get one hundred thousand dollars now to invest.

Alternative 2: Get one million dollars in 30 years time.

If you look at both sums you naturally do the math one million is 10 times one hundred thousand and therefore you should take the one million but what you miss to take into account in this example is that 100 000$ in 30 years isn't still worth 100 000$ if you take into account investing the sum. The financial markets has generally given an 8 % annual return. Therefore if you calculate 100 000$ at an annual rate of 8 % in 30 years you arrive to 1,006,265$ which is higher than the sum of 1,000,000$. Therefore you should naturally take the 100,000$ now and invest!

A more realistic approach to this example because nobody is just handing out 100,000$ to invest(that I know of, please notify if im wrong!) is the one of a 20 year old starting his career. Lets say a 20 year old is starting his career. Hes making a decent living till he is going to go in pension at lets say 75 years old. This makes a gap of 55 years till he stops working and living on his savings. Lets then assume an average wage throughout his or her lifetime of 36,800$ which is a pretty conservative estimate. Our friend is then able to save approximately 40 % of his wage which gives him a decent living expense. So 40 % of 36,800$ is 14,720$ going into the bank and savings. Our fellow is pretty smart and starts investing early he then starts the first year with 14,720$ in the bank which then grows and grows as shown in the chart below.

ROR/Age	20	25	30	40	50	60	75
3 %	14,720$	78,151$	168,748$	395,532$	700,310$	1,109,907$	2,002,974$
8 %	14,720$	86,356$	213,242$	673,616$	1,667,529$	3,813,311$	12,496,150$
15%	14,720$	99,248$	298,870$	1,507,970$	6,399,450$	26,188,209$	213,795,457$

The difference between earning 8 % annually versus 15 % is very big when taking into account a long time period. The same implies the difference between earning 3 % and 8 % annually. The stock market has given approximately an 8 % annual rate of return (ROR) and therefore you can see from the chart that after approximately 35 years of saving 40 % of your annual wage you will have hit the 1 million dollar mark.

 What this chart doesn't do is take into account any other changes in your income, for example inheritence which can accelerate the speed at which you reach a million dollars. You can see from the chart that from 14,720 $ to 298,870$ it takes 10 years with a ROR of 15 % whilst from 26 million dollars to over 200 million dollars it take 15 years. So if you start with a larger capital base you will accelerate your gains because the chart takes into account your compound rate of return which accelerates exponentially.

Conclusions: You should start saving early as a bigger capital base in the beginning will accelerate your speed as to getting to 1 million dollars. 1 dollar today is worth a whole a lot more in 50 years!!! Try to get the biggest ROR but avoid increasing your risk too much. Let your money work for you not the other way around! Enjoy and have fun while saving!