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Barring any major family emergencies or other drivers of sustained unemployment, you'll likely be working for at least 40 years of your life. When you're done, what will you live on?
Will that be enough?
As tough as that message may be to swallow, it's a painful reality we pretty much all have to accept. These days, there really aren't many other reliable sources of retirement money other than what we ourselves put away on our own behalf.
Even within that grim picture, though, there's a ray of hope: You don't need to be a great investor to retire a millionaire, even if all you get is what you yourself can sock away. What you do need, though, is a combination of time, investable cash, and the discipline to keep funding your future, year after year.
If you've got that 40-year career ahead of you, check out your potential path to $1 million or more, so long as you invest every month for that entire 40-year time:
Monthly Investment Amount
10% Annual Returns
8% Annual Returns
6% Annual Returns
4% Annual Returns
2% Annual Returns
If you're able to sock away at least $1,375 a month for the next 40 years, you're nearly guaranteed to wind up a millionaire, even if all you do is average 2% annual returns. Best of all, that $1,375 a month corresponds to $16,500 a year, the contribution limits for those who have 401(k) or 403(b) tax-deferred retirement plans.
In other words, if you max out your 401(k) throughout your entire 40+ year career, all you have to do is hit 2% returns, and you'll wind up a millionaire. Do better than that 2%, and you'll either wind up with more or have the opportunity to retire sooner.
Even during the recent lost decade, you could have made money by dollar-cost averaging into an S&P 500 index fund like the SPDRs (NYSE: SPY ) and reinvesting your dividends. 401(k) investing is typically dollar-cost-averaging-type investing, where you invest a set amount each payday. If that style of investing can help you keep from losing your shirt during one of the worst decades ever for the U.S. stock market, imagine what it can do in more normal times.
Of course, you may be of the mind that the future will bring faster growth and better returns outside of America. In that case, Vanguard's Total World ex US (NYSE: VEU ) (Nasdaq: VXUS ) funds may be more to your liking. Or if you're not entirely ready to throw the U.S. to the curb, Vanguard's Total World (NYSE: VT ) exchange-traded fund covers the entire globe, including the states.
If the stock market's recent behavior has turned you off stocks completely, or if you want to further diversify across asset classes, there are always bond funds. Vanguard's Total Bond Market (NYSE: BND ) ETF covers a broad array of debt, and the Powershares 1-30 Treasury Ladder (NYSE: PLW ) builds a 30-year bond ladder from U.S. Treasuries.
Of course, if you're expecting interest rates to rise in response to expected inflation, you might want to avoid typical bond funds, whose market prices can fall as rates rise. Instead, you might prefer iShares Barclay's TIPS Bond (NYSE: TIP ) ETF, whose underlying assets (Treasury Inflation Protected Securities) get stepped-up values in response to inflation.
Any way you slice it ...
No matter how you choose to invest over the course of your career, one thing is abundantly clear from that chart above: The more you invest throughout your working life, the better off you'll be. With millionaire status virtually assured you at the end of a career of consistently saving a decent chunk of change, it's important to get started quickly.
Any reasonable investment strategy, carried out long enough with enough capital consistently put behind it will enable you to retire a millionaire by the end of an ordinary working career. The most important parts are to get started early and to follow a strategy that you can keep with throughout the decades of your life as an investor.