Want to be a millionaire? Of course you do. Who doesn’t want to be a millionaire? Other than maybe a billionaire. Even in 2022, with inflation taking off, one million dollars still goes very far.
As investors, we’re all interested in increasing our wealth, passive income, and independence in life. That’s what we’re here for.
However, the idea of investing implies that you need a lot of capital. You need money to make money, right? Well, actually, you might need less than you think.
The journey to $1 million can be less about your capital and more about your personal attributes. Specifically, patience and persistence will go a long way, even absent a lot of capital.
Today, I want to tell you how you can realistically turn just $100 per month into $1 million. Ready? Let’s dig in.
So how do we turn a little bit of money into a lot of money? How can $100 per month turn into $1 million? Well, there are two important ingredients here: time and compounding. Compounding is almost like wizardry in its ability to create magic.
Compounding is so powerful, even Albert Einstein was blown away by it.
He called compound interest the 8th wonder of the world. He wasn’t exaggerating. Compound interest is interest on top of interest. It’s where old money makes new money, and then the new money makes more new money on top of the new money. It’s as if money is cloning itself at an ever-faster rate, creating an ever-larger army of money for you.
And all of this is happening at an exponential rate.
If simple interest is akin to addition, compound interest is akin to multiplication. That’s the difference. And what a difference this can make when you add in the other ingredient – time. If you mix a lot of compounding and a lot of time together, mind-blowing alchemy results from this.
So how does this work? What’s the math behind this?
Okay. I’m assuming you’re starting from $0. You will persistently invest $100 per month, month in and month out, for years of your life. And you’ll patiently wait for that small sum of monthly capital to compound. The annual rate of compounding I’m assuming here is 10%, which is in line with the long-term average of the US stock market.
This isn’t hard. $100/month isn’t a lot of money. And I’m not assuming any outperformance in your investments.
Yet, over the course of 46 years, that $100/month compounding at 10% per year adds up to… drumroll, please… $1,045,169.82.
Yes, it took 46 years. But we’re talking just $100/month here. And turning that small amount into $1 million. That is amazing.
How amazing? Well, it could allow someone in their early 20s to easily become a millionaire by the time they retire, without putting in much effort at all. They would simply need to persistently invest that $100/month and remain patient while the compounding process plays out over a long period of time.
The crazy thing here? This was almost completely the result of compounding.
Of that end sum of more than $1 million, we’re talking about total contributions of just $55,200. That’s $1,200 per year, for 46 years. So you invest slightly more than $55,000 of your own money. And you end up with more than $1 million. Again, this isn’t simple addition.
This is multiplication of your money. It’s nearly 20x your invested capital. Said another way, 95% of your ending value of more than $1 million was the result of compounding. Getting back to Einstein’s point, this is how powerful compounding can be over the course of time when you personally add persistence and patience to the mix.
But what if you’re older? What if you’re getting a late start to investing?
Then you’ll need to retire a little later to still end up with that $1 million off of $100/month. This is why it’s so important to start investing early in life. It’s like the old joke in politics about voting early and often, except in this case, the advice would be to invest early, invest often.
Compounding is incredibly powerful. But the more time you can give it, the more powerful it can be. Warren Buffett, the billionaire who is arguably the greatest investor to ever live, has analogized his entire life to building a really large compounding snowball. He gathered some wet snow – aka capital – at a young age. And he was able to start rolling the snowball at the top of a really long hill.
Besides, this is just for fun. I know that you can, and will, invest more than $100 per month.
When your eyes are fully opened to compounding’s incredible power over the long term, you will want to take maximum advantage of it. There’s no other rational way to respond to it. This stuff is just plain exciting. When you see what only $100/month can do, you’ll start to imagine what $500/month, or $1,000/month, or more can do.
But you don’t have to imagine. I’ll show you.
Let’s say you can persistently invest $1,000 per month and patiently wait for the compounding process to play out over the course of 25 years. 25 years isn’t really all that long. Even if you get a really late start to investing, you could still come out with seven figures at a reasonable age. Let’s say you start investing at the ripe age of 40 years old.
Well, 25 years of investing puts you at 65 years old – which is pretty much retirement age. You need to test the persistence a bit more with a larger capital commitment every month, but you cut the patience requirement almost in half compared to 46 years. Indeed, investing $1,000 per month at a 10% compound annual rate of return for 25 years turns into nearly $1.3 million.
Better yet, it’s certainly possible to achieve a compound annual rate of return higher than 10% over the long run.
We cover high-quality dividend growth stocks here at the channel. These are some of the best stocks in the world, because they represent equity in some of the best businesses in the world. Why do I say that? Well, it requires a world-class enterprise to be able to consistently pump out the reliable, rising profit necessary to pay a reliable, rising dividend to shareholders. You can’t have the latter without the former. Not for long, anyway.
And because these are some of the best businesses in the world, they often outperform.
High-quality dividend growth stocks like Apple (AAPL)Lockheed Martin (LMT) and Texas Instruments (TXN) have all compounded at rates vastly in excess of 10% annually over the last decade.
The S&P 500 is approximately 500 of the biggest companies in the US, making up what’s collectively known as the “broader market”. But some businesses are better than others, and their long-term performance reflects their superior nature. And it would behoove you to consider investing in those businesses for the long run.
Plus, it’s not just outperformance. It’s also those safe, growing, juicy dividends.
Net worth is great. But we don’t go to the net worth store and buy things with our net worth, right? We need cash flow. Well, high-quality dividend growth stocks are like the golden geese laying ever-more golden eggs. You live off of that growing pile of golden eggs – the dividends – and leave the golden geese – the stocks – to get fatter and happier over time. It’s a win-win.
What’s better than becoming a millionaire? Staying a millionaire.
Many high-quality dividend growth stocks don’t just beat the market on long-term total return. They also pay out market-beating dividends, which means you could one day live off of totally passive dividend income rather than having to slowly sell off your assets and risk losing the million you persistently worked toward and patiently waited for. Plus, because these dividends are often growing faster than inflation, your purchasing power actually grows over time.
You can realistically turn just $100 per month into $1 million.
Taking advantage of the 8th wonder of the world in compounding is critical. And the more time you can give it, the better. Now, compounding and time are external forces. All you personally needed here was patience and persistence. You need to persistently stick with the plan through thick and thin, feeding that sum of money every month.
And you need to have the patience necessary to see it through over a long period of time. If you can do like Warren Buffett and start at the top of a really long hill, that’s great. And if you can invest in a way that vastly exceeds the market’s average compound annual rate of return, which could supercharge compounding’s already incredible power, even better. Bottom line? Mixing compounding, time, persistence, patience, and dividend growth investing could turn you into a millionaire before you know it.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
The goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.