Getting Rich Is Simpler Than You Think

Blend three ingredients -- a paycheck, discipline and time -- and, you, too, can be a millionaire. It's not always easy, but it's simple. And you have no excuse not to do it.

By Harry Domash

Here is the single most important thing you will ever hear about investing: Getting rich is simple.


Not easy, but simple.


And here is the second most important thing you will ever hear about investing: You have no excuse not to do it.


Only three ingredients are needed: income, discipline and time. Chances are, you already have two of them, income and time. All you need to do is add the third, discipline. And armed with the following knowledge, that key third ingredient may be a lot easier to find.


Here's how it works: Say you start with nothing, invest $500 (of your income) a month (a healthy discipline), and let your money ride (over time) in diversified investments. Long term, the stock market returns at least 10% annually. Assuming a 10% return, you'd have $102,000 after 10 years, $380,000 after 20 years, and $1.1 million in 30 years.


Here's a similar scenario: If you start with a nut of $50,000 and add only $250 per month, you'd have $180,000, $516.000 and $1.4 million after 10, 20, and 30 years, respectively. All this happens through the power of regular investing and a simple-but-powerful concept called compounding.


Compounding
What is compounding?


Compounding is the reinvestment of the interest you receive from the money you set aside. For example, if you invest $1,000 and earn 10% interest on your principal at the end of each year, you'll get in $100 interest at the end of the first year. If you reinvest that interest, the second year you would start with $1,100, and thus would earn $110 interest. If you stay with it, you'd more than double your money every eight years.


"Compounding," Albert Einstein said, "is mankind's greatest invention because it allows for the reliable, systematic accumulation of wealth." Einstein was a smart man. But you hardly have to be a genius to make this concept work for you.


The real magic of investing comes when you combine the surprising power of compounding with continuous and regular investments -- in other words, discipline.


The best way to make these continuous investments happen is by setting up an account that automatically deducts a fixed amount from your bank account every month. "Automatic" is the operative word here. Trust me, if you don't set it up that way, it won't happen. Instead, you'll end up pouring money in when the market is soaring and skipping payments when it's heading down. Eventually you'll get discouraged and give up.

For the vast majority of us, wealth creation is a slow and steady -- and powerful -- process. The tortoise almost always beats the hare.

It's not easy. But it's very, very simple.
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