Please ensure Javascript is enabled for purposes of website accessibility

From 1 Millennial to Another: Honest Advice on How to Get Rich, Pt. 2

By Erin Kennedy - Updated Jun 10, 2018 at 2:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Don't spend all that Christmas money just yet: Here's an abbreviated guide tailored for millennials who (possibly) aren't really that interested in how to build wealth through investing.

Here at The Motley Fool, we aim to help the world invest -- better. And that world includes busy and uninterested millennials who perhaps haven't contemplated investing or retirement...until now.

The Fool tends to point beginner investors to our 13 Steps to Investing Foolishly. It's quite a lot of words, though, so I wrote a six-step guide tailored for beginning investors who (possibly) aren't really that interested in investing. This is the second article in the series (click here to read Part 1), and it covers steps 3 and 4:

  1. Pay off debt
  2. Save and invest with the right money
  3. Always be investing
  4. Open an account
  5. Finally buy something!
  6. Keep buying things

Let's dig in.

3. Always be investing.
Make it a habit to buy shares on a schedule. Once every quarter is a good rhythm for most investors. Don't just buy some stuff and expect to sit on it for 20 years and end up a millionaire. Adding to your investment can only help compound it, and compound returns are what turn ordinary people into millionaires.

Check out this graph inspired by the 13 Steps. This is what you'll get if you invest only $1,200 every year and earn 8% on average -- a solid but realistic return. (Keep in mind that you could invest much more than that -- you can do way better than $100 a month, right?)

Data source: author's estimated rates of return and a compounding calculator

Crazy, right? And observe how the money increases exponentially -- see the massive difference between 35 years in the market and 40? If that's not enough to make you believe in the magic of compound returns, just think about the fact that Warren Buffett made the majority of his billions after turning 50. And there's good news: If you start now, you have decades to invest and compound!

So you can see why investing early and often matters. Now here's how you get started.

4. Open an account.
Opening your first investing account is easy and free. Right now, you probably just want to open a regular brokerage account.

  • What about an IRA account?
    You can also open an IRA or a Roth IRA. The acronym stands for "individual retirement account," because IRAs are built for retirement savings -- not money you might need before your 60s. In an IRA, you pay no taxes on capital gains or any dividends you receive. There's one main difference between a traditional IRA and a Roth IRA: A traditional IRA is funded with pre-tax earnings, so you get an up-front income tax deduction, but you will be taxed on all your withdrawals when you start taking out money in retirement. A Roth is funded with after-tax earnings, so there's no up-front tax break, but your money is not taxed when you start withdrawing.

    IRAs come with some restrictions. With a traditional IRA, you'll pay a 10% penalty on any money you take out before age 59-1/2 (with a few exceptions, including a one-time withdrawal for buying your first house). You'll also have to pay income tax on those withdrawals. With a Roth IRA, you can withdraw as much as you've contributed at any time, but if you touch any of the earnings on those contributions before you're 59-1/2, then the IRS will claim its 10% cut (but no taxes, since you already paid those).

Stay tuned
The final installment to this guide to getting rich slowly is here. Spoiler alert: The next step is to actually buy something. The final step is to roll around in your piles of money, Scrooge McDuck-style. (Just kidding. It's not.) Read on!

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.