Article: How to Become a Millionaire by 40

[FiftyIsTheNewTwenty]

Not much new here for many of us, but more good thoughts:

https://fee.org/articles/how-to-make-a-million-bucks-by-40/

BTW I'm not a right-winger or a Libertarian.  But fiscal conservatism, classical economics, and libertarianism do inform my views, and FEE is great reading.

[use2betrix]

Great article. Thanks for sharing. With so many points made, im sure some members here will have parts they don’t agree with, but as a whole, I especially enjoyed his mentality.

[talltexan]

I admire that DV links to an article that takes the opposing view point, i.e. a 45% savings rate is unachievable, but--if you can save a little more, earn a little more, etc.--you can still get to the double-comma club by age 46. It encourages good, honest debate, even if we mustachians are more like DV.

[jlcnuke]

Not a terrible article, but not a great one either. I find it hard to take a guy seriously who's giving "financial advice" and including things like "Yes, buying will generally save you money over renting in the long term"... and then saying don't do it.... because saving money in the long-run is bad somehow?? and he's paying someone to manage his investments (calling it a robo-trader, but Personal Capital isn't a robo-trader) instead of using a simple portfolio that takes little time and no-money to keep it balanced if you do it smartly? Oh, and he's also effectively telling people not to go to college (as I read it) and ignoring the massive difference in income potential while noting that most American's aren't going to be able to follow his path to $1 million by 40....

Sorry, but as I said, not a great article.

[Ricksun]

Not a terrible article, but not a great one either. I find it hard to take a guy seriously who's giving "financial advice" and including things like "Yes, buying will generally save you money over renting in the long term"... and then saying don't do it.... because saving money in the long-run is bad somehow??

I think both those statements are correct, but not fully fleshed out.  Yes, in the long term, a mortgage is cheaper than renting by itself, but doesn't account for the opportunity cost of potential market gains, since historically the market returns higher than the property values increase.  At least that's how I interpreted it...

Ricksun

[jlcnuke]

Not a terrible article, but not a great one either. I find it hard to take a guy seriously who's giving "financial advice" and including things like "Yes, buying will generally save you money over renting in the long term"... and then saying don't do it.... because saving money in the long-run is bad somehow??

I think both those statements are correct, but not fully fleshed out.  Yes, in the long term, a mortgage is cheaper than renting by itself, but doesn't account for the opportunity cost of potential market gains, since historically the market returns higher than the property values increase.  At least that's how I interpreted it...

Ricksun

If you're staying in the same place over the long-term, the mortgage is cheaper and better.

The thing about the "opportunity cost" argument against a mortgage is that you're only missing out on any opportunity IF you don't have to make a payment anyway. Whether I pay a $1,000 mortgage each month for 15 or 30 years, or I pay $1,000 in rent each month for the same period of time, the money is still not available to be invested in the market. Additionally, the mortgage cost (PI) doesn't change over those 30 years, rent historically increases ~3% each year. Even if you start out renting a place that's cheaper, not a fair comparison but let's go with it (let's say $800/month instead of $1k/month), by the time 30 years is up you're paying so much more than the mortgage amount that it costs you more to rent ($456k over 30 years renting vs $360k mortgage) and you still have nothing to show for the hundreds of thousands of dollars you've spent vs owning the place outright and having your housing costs massively decrease moving forward.

Renting is a good idea if:
1. You won't be in the home long term.
2. You want the freedom to pick up and move at anytime with nothing holding you there.
3. You psychologically are averse to owning.

[Praxis]

Not a terrible article, but not a great one either. I find it hard to take a guy seriously who's giving "financial advice" and including things like "Yes, buying will generally save you money over renting in the long term"... and then saying don't do it.... because saving money in the long-run is bad somehow??

I think both those statements are correct, but not fully fleshed out.  Yes, in the long term, a mortgage is cheaper than renting by itself, but doesn't account for the opportunity cost of potential market gains, since historically the market returns higher than the property values increase.  At least that's how I interpreted it...

Ricksun

I disagree with this the way you phrased it, because of leverage.  ROI on buying a house actually can beat the stock market, because of low interest rates right now.

Also, it depends on the region. Rental returns in normal markets aren't actually that different from the stock market.  You get roughly 6-7% ROI annually, plus it adjusts up with inflation (rents go up with inflation).  That said, rentals in big cities in high demand often have lower ROI.


The opportunity cost is ability to easily get a job and move.

[partgypsy]

I think there are many paths to becoming a millionaire, and he is telling lessons he learned. I've also known other people who have lived abroad and were able to save more money, especially if that person or spouse also can earn in that country doubling your earning power. for some people, owning a home makes financial sense, especially if move rarely or never. In other situations renting is better.  I think the tenets of minimalism help in whatever situation you are in.

I definitely made a similar mistake to him, in that I'm "over educated". While I accrued no loans, I was in graduate school and in a post doc during what could have been prime earning years. My job does use my degree, but I don't need my degree to do my job.  Hindsight is 50/50 so I'm not going to beat myself up, but just work on going forward.

Myself one of the things I toy with, is moving. I can afford the mortgage, and it is set to be paid off in 8 years. I love my location (very walkable) and I can see retiring here. However, my house has accrued in value and due to divorce an even large percentage of my net worth. It's possible for me to get a similar house in a less walkable area, pay off house and pocket an additional 50+K. So it's something I toy with. I haven't come across another house that to me tips the cost/benefit ratio, but who knows.   

[GoHokies]

I thought the article was overall pretty good.  Any article that comes out these days that sheds a light on savings and the freedom it provides you I think is an overall positive, especially considering all the other crap you see coming out. There were a few suggestions I disagreed with, such as the need for a robo-advisor (I'm not even sure he is using this term correctly) and the whole rent vs buy thing. My stance on the rent vs buy thing from a purely financial standpoint is that it heavily depends on the specific market you are in and what assumptions you have on the future. I think broad statements like "housing beats out renting in the long run" are misleading.

My advice to anyone deciding between the two options is to go the NY Times rent vs buy calculator (this is the most complete calculator on the web I've been able to find) and compare your market specific renting and buying options. I think the tool is really powerful, as if you have a good handle on every input except growth expectations for the future, you can back into what level of home price appreciation would be needed to make buying more attractive over renting. If your home needs to appreciate at 6% to make it more attractive compared to a similar rental, then you might want to consider renting as I think it's unwise to depend on 6% home price appreciation. There are also other financial factors such as what % would your home equity be of your NW, owning a home is a good inflation hedge, etc.

This obviously ignores any personal satisfaction or personal freedom you get from owning a house.  Some people are willing to pay a slight premium to own something and not have to worry about their landlord kicking them out or they want to do some sort of renovation/customization to the house.

[libertarian4321]

Not a terrible article, but not a great one either. I find it hard to take a guy seriously who's giving "financial advice" and including things like "Yes, buying will generally save you money over renting in the long term"... and then saying don't do it.... because saving money in the long-run is bad somehow?? and he's paying someone to manage his investments (calling it a robo-trader, but Personal Capital isn't a robo-trader) instead of using a simple portfolio that takes little time and no-money to keep it balanced if you do it smartly? Oh, and he's also effectively telling people not to go to college (as I read it) and ignoring the massive difference in income potential while noting that most American's aren't going to be able to follow his path to $1 million by 40....

Sorry, but as I said, not a great article.

I agree.  There is some good advice, but the guy sounds like he's all over the place. 

He made most of his money in the past 8 years, a period of ridiculously good markets.  And he did some things that probably aren't a good idea (take out student loans and invest them in the stock market?)

[canuckystan]

Unless I missed something, he never says that *he* has actually made $1M.  Just tips on how someone could do it.  So the advice isn't worth a whole lot.

[w@nker]

Math problem.  He says he lost 60% of his investment in 2008.  Then, somehow, he claims that a 58% gain in 2009 erased all of his losses.  Mathematically, he would have needed a 150% return to erase a 60% loss...

[talltexan]

This math is correct if he isn't investing any new contributions.

[jlcnuke]

This math is correct if he isn't investing any new contributions.

$100, takes a 60% loss ($60) leaves $40.

A follow-up 58% gain on the remaining $48 = 48 + 48*0.58=48 + 27.84 = $75.82. Still down over 24%, being down 24% isn't erasing all your losses.

[Swish]

@jlcnuke +1 this is how I understood it too. It is funny math.