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Suppose your goal is to accumulate $1 million in 20 years or less. There are two factors that will determine whether or not you’re able to achieve this goal:
1. The amount you save and invest each year
2. The investment returns you earn each year
For simplicity, let’s assume you invest all of your savings each year into an S&P 500 index fund. I recently analyzed how the S&P 500 performed during every 10, 20, 30, and 40-year investment period since 1928. Here’s the summary of that analysis:
The annual returns for a 20-year period ranged from 0.6% up to 13.2%, with a median annual return of 7.3%.
According to this investment calculator I built, you would need to invest $47,000 every year for 20 years to accumulate at least $1 million if you only earned 0.6% returns each year. Conversely, you would only need to invest $10,677 every year for 20 years to accumulate at least $1 million if you earned 13.2% returns each year:
And if you caught the median 20-year period with 7.3% annual returns, you would have needed to invest $22,033 per year to accumulate at least $1 million:
This shows just how much of a difference investment returns can make. If you happen to invest during a wonderful 20-year stretch, you may only need to save and invest a little over $10,000 per year to become a millionaire. But if you happen to invest during a horrible 20-year stretch, you may need to invest over $47,000 every year to become a millionaire.
The worst part is that you can’t control how the stock market will perform during a given 20-year stretch. You might receive tremendous help from investment returns, but you might not.
Fortunately, there’s a way to become a millionaire without depending on stock market returns: create your own investment returns.
Create Your Own Investment Returns
Typically when you think of “investment returns”, you think of stocks, bonds, or real estate. And while I advocate investing in these asset classes and personally invest my own savings in them, the returns can be largely outside of your control.
Sure, you can decide which type of assets to invest in (large-cap stocks, mid-cap stocks, small-cap stocks, apartment REITS, storage unit REITs, short-term bonds, long-term bonds, etc.) and you can pick investments with low fees, but you can’t ultimately control how these investments will perform over a given period.
The one type of investment you can largely control is an investment in yourself. Some examples include:
- Investing in degrees
- Investing in your own skill set
- Investing your time into building a business
- Investing your time into side hustles
Here is how I have personally invested my own time and energy into these four types of investments and how I have earned returns on each:
Investing in degrees
I spent four years in college earning a bachelor’s degree in applied statistics. Since I majored in a technical subject that most people hate, I was able to land a job straight out of college as a data analyst with a salary of $52k.
Immediately after finishing my bachelor’s degree, I completed a one-year program to obtain my Master’s degree in statistics. This opened up my employment options even more. With this degree, I was able to land a new job as a data scientist with a salary of $80k.
Although I believe there are plenty of ways to earn a decent income with an associate’s degree in certain fields or even no degree at all, I can only speak from my own experience. Earning degrees in statistics helped me achieve a fairly high income while still in my early 20s, which is the main factor that helped me achieve a net worth of $100k by age 24.
If you are considering getting a degree to boost your income and your opportunities, research tells us that degrees in tech/math/engineering and healthcare are expected to deliver the highest return on investment over the coming years.
For reference, here are the occupations with the highest expected growth in the U.S. from 2016 to 2026:
Investing in your own skill set
- Build a statistics educational website called Statology that actually helped me land my first corporate job.
- Build interactive data visualizations that have driven serious traffic to this blog, which has increased my blogging income.
- Successfully answer programming questions about R in an interview that helped me land my current job as a data scientist.
Ultimately I spent $0 on courses or books to build up my technical skill set. I simply spent time learning these various programming languages mostly with the help of Google, which have all helped me boost my income in one way or another.
Investing your time into building a business
About two years ago I wrote my first ever blog post on Four Pillar Freedom. For the first few months, I received very little traffic and earned no income whatsoever. Fortunately, I decided to start a daily writing habit, which has helped me publish articles more consistently and has increased both my traffic and revenue over time. Now, over 560 blog posts later, I have a sizable audience and last month alone earned over $1,600 through this blog.
An excellent way to increase your income is to simply build your own business and create your own income stream. Blogging can be one way to do this, but there are plenty of other ways to create businesses:
- Dave from Accidental FIRE sells graphic designs online.
- Cody from Fly to FI started his own disc golf manufacturing company.
- Millionaire Dojo has an eBay store that he uses to earn hundreds of dollars in extra income each month.
Investing your time into side hustles
Side hustles can be another excellent investment that can help you increase your income. Personally I earn $40-50 per hour tutoring college students in statistics. Some examples of other bloggers I’ve met who have successfully found side hustles include:
Jennifer Chan, a full-time lawyer, found a way to turn freelance writing into an income stream.
Kenzi from Kenzi Writes was able to turn freelance writing into her full-time job.
Kevin from Financial Panther frequently earns over $3,000 each month with side hustles like Airbnb hosting, Rover dogsitting, and DoorDash food delivery.
Young FIRE Knight found a way to earn over $300 per month charging electric scooters.
Accumulating $1 Million Without the Help of the Stock Market
Earlier we saw that the median annual return for the S&P 500 over a 20-year period was 7.3% per year. Let’s consider an individual who is able to use the four types of investments I outlined earlier to increase their own income by 7.3% per year, without the help of investment returns.
Suppose this individual earns a salary of $40,000 per year in year 1 and increases their income by 7.3% each year. We’ll assume they increase their spending each year by 3%. We’ll also assume that they invest the difference between their income and expenses each year in the S&P 500 and earn the worst annual returns of any 20-year period ever: 0.6% annual returns.
Here is how their net worth would grow over the course of 20 years:
This individual would be able to accumulate $927,181, just a bit short of $1 million, during the worst 20-year investment period ever. With very little help from S&P 500 investment returns, this person would be able to nearly reach their net worth goal of $1 million purely through creating their own investment returns and increasing their own income each year. That’s incredible.
To see how investment returns could impact your net worth journey, feel free to fiddle around with the interactive chart below where you can enter your starting net worth, starting income, annual income growth, starting expenses, annual expenses growth, and annual investment returns:
Earning investment returns on things like stocks, bonds, and real estate is great, but not always within your control. The one type of investment you can make that you have ultimate control over is an investment in yourself through earning degrees, building up your skill set, building your own business, and pursuing side hustles.
Don’t leave investment returns up to chance. Create your own investment returns.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
Although the bulk of his net worth is invested in index funds, his favorite place to invest in individual stocks is M1 Finance, a site that allows you to build a custom portfolio of stocks for free.
His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.
His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.
His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.
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Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.