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How to make 7 million in 7 years …

It's the gradient of the curve …

Making millions is serious business …

… don’t worry, here’s a short-cut where you can jump straight in  )

Now, back to today’s post ….

___________________________

That’s right, it’s not the size of the mountain … but, the gradient of the curve that will get you!

Given enough track, any train can climb any mountain. The track just can’t be steep … hence lots of track … hence lots of meandering around and around to get to the top (if that’s where a train really wants to go) … hence lots of time.

The train can get you there, it just can’t do it very quick!

Similarly with your Number … the size of the number doesn’t phase me, nor should it phase you …

You want a million dollars?

Easy, buy a $100 unit in a low-cost Index Fund and wait …

83 years.

Want a million in today’s buying power? Then, you’ll need to wait another 38 years.

Want $5 Million in today’s buying power? Just wait 21 years more!

You see, it’s not the size of the mountain that will kill you, but the gradient (steepness) of the sides that you need to climb.

That’s why we also need to know the Date that we want to achieve the Number:

Enter your starting Net Worth, your ending Number, and the number of years in between into a simple on-line calculator, and it should tell you the Average Compound Growth Rate required to go from the bottom (you current Net Worth) to the top (your Number).

The Average Compound Growth Rate is a measure of how ‘steep’ a financial mountain you need to climb … and, that should tell you whether you need a train, a fast car, or a helicopter to get you to the very top in time.

According to Michael Masterson in his book Seven Years To Seven Figures:

Required Compound              Investments

Growth Rate                             Required

4%                                                  CD’s

8%                                           Index Funds

15%                                              Stocks

30%                            Real-Estate together with Stocks

45%              Real-Estate together with Stocks and Small Businesses

50%+                           Start Your Own Business

So, how big is your mountain? More importantly, how steep the gradient?

And, are you prepared to try a new mode of transport, if that’s what is required?

If not, you’ll either need to find a smaller mountain (deflate your expected lifestyle) or simply give yourself some (a lot?) more time!

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31 Responses to “ It's the gradient of the curve … ”

  1. Lee says:

    OH MAN! You were smart enough to take a train up this mountain. I thought we were going to “climb” the thing. Oh well I guess that’s why you are so far ahead of the rest of us huh:)

  2. AJC says:

    @ Lee – I think I can, I know I can …. :)

  3. Diane says:

    Thanks for the link to the online calculator! What can I do for 200% annual compound growth?

  4. AJC says:

    @ Diane – I have two words for you: “BIG Business” ;)

  5. Jeff says:

    Mine rate wound up being 36%. Somewhere between Stocks and Real Estate….and Stocks, Real Estate, and a Business. A better scenario than I thought I was going to be in chasing 10M/10Y.

    Jeff
    I’m managing my own money, are you managing yours?

  6. AJC says:

    @ Jeff – I would say that’s still VERY aggressive, given where Index Funds and CD’s sit … but, certainly in the ‘sweet spot’ for somebody determined to be an entrepreneur and investor … you’ll need to run some numbers if you intend to skip the ‘business’ part and rely on a high income, instead.

  7. Jeff says:

    AJC – In a few years I’ll have the added benefit of a military pension to add into the mix. 50K/year indexed to inflation as long as I can breath air.

    While not a business, stock or real estate, I think the pension is equivalent to at least 1-1.5 million in assets in the bank dependent upon your rate of return. So maybe I only need to get to 8.5 million. :-)

    -Jeff
    Learn how I’m managing money.

  8. AJC says:

    @ Jeff – You just smoothed your gradient! If the pension is guaranteed, then you can adjust your Number accordingly.

    Also, if you are able to trim your living standard back to something approximating your pension, you can virtually ‘free roll’ your way through businesses or whatever investment strategies that you may be willing to try. In other words, your ‘rock bottom’ is still enough to put some sort of roof over your head and food on your table …

  9. […] Michael Masterson’s “chart” seems to advise that I need to get into a business.  Adrian added, in a comment, that it would be, for me, “BIG” business.  Oy vey! […]

  10. […] 1. Start by reviewing your Required Annual Compound Growth Rate […]

  11. Money Funk says:

    I started following this website and figured my compound annual growth rate would be 81%! Eeks. That some tall orders to fill. Looks like I should reconsider. But that wouldn’t be me. ;) I have always wanted to start my own business. Hmmmm….

  12. Adrian says:

    @ MoneyFunk – You catch on quick! So, that’s a good sign for a budding entrepreneur :)

  13. […] Calculate the required Compound Growth Rate to go from where you are today to where you want to […]

  14. […] Calculate your required Annual Compound Growth Rate (i.e. to take you from 2. to […]

  15. […] Find the Annual Compound GROWTH RATE required to get you from HERE to […]

  16. […] invested in to get to her current net worth will get me to my Number by my Date [AJC: apply this reasonableness test to the investment mix that she is […]

  17. […] 2. Assuming it’s VERY important (critical even), how he is going to get there. […]

  18. […] am, perhaps, guilty – along with Michael Masterson whom I quoted in this post – of providing the impression that, in order to make your Number, you simply need to ramp up […]

  19. […] you probably want to start a business to really ramp up those  required annual compound growth rates […]

  20. […] 2. Doing exactly what it is that I need to do in order to achieve my required annual compound growth rate. […]

  21. […] table of ‘money making strategies’ – handily reproduced for you in this post – to see that any number of strategies will be enough to propel him from $1.7 million to $10 […]

  22. […] Michael Masterson’s 50%+ compound growth rate is reserved for businesses that can grow rapidly, have intellectual property that is both desired […]

  23. […] If Michael Masterson is right, and we gain 50% (or more) from our own business, then after 30 years you would have earned $29 […]

  24. […] You calculate the required Annual Compound Growth Rate, which tells you what financial activity you need to undertake (e.g. stocks, business, real-estate, […]

  25. […] 2. Assuming it’s VERY important (critical even), how he is going to get there. […]

  26. Quora says:

    What are some easy ways to make a million dollars?…

    Why are you looking for the easiest way to make $1mill.? $1 million today, if it’s to last your lifetime, probably only replaces a $35k income (in today’s dollars). It could produce more, but you don’t know how to make the money, so you’ll never kn…

  27. […] This usually means comparing the ‘interest rate’ that you came up with when using the online calculator against this table: […]

  28. […] Once you start to see the value of saving though the spectacle of building a modest pool of funds-for-investing, you begin to realize that every dollar that you save today is really the same as $100 in a mere 10 years time – if invested in a business. […]

  29. […] This means, knowing how much money you need; when you need it; and, using those answers to derive your required annual compound growth rate. […]

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