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From Mark Ford, founder, Palm Beach Research Group: Of the hundreds of wealth-building strategies I have tried over the years, the very best ones were also the simplest. Here’s one of them: Make sure you get a little bit richer every day.
A thought occurred to me almost 30 years ago. I had recently decided to become rich, and that decision had me reading and thinking about wealth building day and night.
I was bathing my brain in the elixir of clever ideas. It was very stimulating. I had daily fantasies of getting rich in all sorts of fancy ways. But deep down inside, I knew that these complicated strategies were not for me. When it came to making money, I was extremely risk averse. In the race to a multimillion-dollar retirement, I was a tortoise, not a hare.
At the time, I had a net worth of zero and a salary of $35,000 per year. With three small children and my wife in college, our expenses were gobbling up almost every nickel of my after-tax income.
I pulled a $10 bill out of my wallet and stared at it.
I wondered “How much money would I acquire in, say, 40 years by just putting an extra $10 aside every day in a bank account earning 5% per year?”
I did the numbers and was happy with the answer: almost half a million dollars.
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My total capital invested would be $149,650. But the compounded interest would amount to $291,269, for a total of $440,919.
Then I wondered “What would happen if I put away $15 each day?” That brought the total to $719,604.
And then I asked myself, “What would my retirement fund grow to at 8%?” That brought the total to over $1.6 million!
You can imagine my excitement. And so I made a commitment to get a little bit richer every day.
I soon realized that I couldn’t do this consistently if I invested my money in stocks. The market fluctuated too much. One day I’d be worth $110,000, for example, and the next day I’d be worth $108,000.
My friends and colleagues who knew more about investing than I did told me not to worry about these short-term fluctuations. They said that if I kept my focus on the long term, I’d get the 9% or 10% that the market delivers over time. But though I understood the principle, I didn’t want to settle for that.
So I put the bulk of my retirement savings into municipal bonds, high-yielding bank CDs, and unleveraged rental real estate properties. This drastically reduced the volatility but it also, in theory at least, reduced my expected return on investment (ROI).
I compensated for that lower ROI by taking on more work and devoting a portion of my extra income to my retirement savings. This ensured that I was always ahead of my schedule—even if the ROIs I was getting on bonds, CDs, or real estate dropped.
This simple, tortoise-paced program worked. Since I resolved to get a little richer every day back in the early 1980s, I have never experienced a single day of being poorer than I was the day before.
Think about that.
But there is more to this idea.
Submitting yourself to it will change the way you think and feel about building wealth. It will help you appreciate the miracle of compound interest. It will make you less accepting of risk. It will make it easier to understand the benefits and drawbacks of every type of investing.
And it will turn you into an income addict, which is, in my book, an essential component of thinking rich.
You can begin, as I did, with a goal of $10 per day. Once that becomes easier, you will find that you will want to up the ante. You could hike it to $15, as I did my first year. But soon thereafter, your addiction to income will make it possible for you to raise your target much higher. These days, my target is $10,000 per day—and I do it without worry.
I have explained this wealth-building strategy to lots of people over the years. And I don’t think a single one ever took it seriously. Perhaps it didn’t seem clever enough. Or perhaps they felt they were already doing well by following the investment schemes they were using at the time.
But none of them ever acquired the wealth I did. They sometimes had great individual hits that they’d tell me about—or even winning streaks when the markets were favorable. But as time passed, Mr. Market always had his way with them.
In the race for wealth, I’ve always been a tortoise. But by following this simple rule of getting richer every day, I was able to do better than I ever expected without a single day of feeling poorer than I was the day before.
Reeves’ Note: Mark has spent most of his life looking for the best strategies to build wealth for a comfortable retirement. But with interest rates at historic lows, trying to derive income from traditional savings accounts or CDs is no longer doable for most people.
That’s driving many savers and retirees into riskier investments to find yield…
Are you having problems finding “income in an incomeless world?” Let us know right here. We’re just about to unveil our latest initiative to “level the investment playing field.” Stay tuned for details…
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