
College Grads, Here’s How to Become Millionaires - drey
http://www.mint.com/blog/how-to/become-a-millionaire-07302010/
======
nostrademons
The real reason to save money isn't to invest it in the stock market, it's so
that you have the option to pounce when an opportunity arises. Say that a few
of your smartest friends are founding a new startup, and they ask you to join,
but they won't be able to pay you anything but equity until it gets off the
ground. If you've got cashed saved up, you can take this risk; if you don't,
you'll have to pass.

Stocks _can_ fall into this category, but you should make that determination
based on the fundamentals of the stock, not based on the blanket declaration
that stock prices have always gone up in the past. If you see a stock that's
grossly undervalued by the market, it's wonderful to have cash to pounce on
that. If the whole market is (still) overvalued, which it seems to be to me,
it doesn't make sense to pour money into it.

~~~
Retric
For most people the real value in saving money when they are young is not
investment but to avoid debt. 10+k at 22% is a huge trap that catches a lot of
people.

PS: 10k of CC debt when you are 30 can easily cost 23,000$ EVERY year in
retirement. 10,000 * .22 * (1.07 ^ 35). Even if you pay that off after one
year you are still looking at (10,000 * 1.22 * 1.07 ^ 34) = ~121,732$ of lost
cushion when you retire.

~~~
Unseelie
That's the value of a balanced budget. The value of saving is compound
interest, whether in money market or stock dividends, or a brilliant startup
(what if the startup you pounce on fails or only breaks even?). Saving early
means you start in on the compound interest sooner, which means you get a
longer timeframe on your exponential growth.

~~~
Retric
It's hard to keep a balanced budget that can still handle random expenses like
a new transmission or even worse 2 months of unemployment without being in the
habit of saving money.

------
_delirium
This is extrapolating from a pretty small data set, and worse, the data set
was collected in circumstances different from the ones it's being used to make
predictions in. It's quite possible stocks will go up in the 2010s, but the
fact that stocks went up in the 1940s after losing a bunch in the 1930s isn't
a very good reason to think so--- the pattern is extremely weak, and collected
from a data set that isn't nearly big enough to falsify these kinds of pattern
inferences.

But nonetheless, you can still do better analysis than these kinds of eyeball-
the-chart analyses. Does this prediction of cyclic returns hold up under some
attempt to retroactively test it, e.g. via cross-validation?

And of course that's ignoring the bigger problem, that it's quite possible
average returns in the 21st century will not be as good as average returns in
the 20th century were, making any extrapolation too optimistic.

~~~
xiaoma
I suggest reading some of Siegel's books. There are good records going back
_two_ hundred years. The stock market has beaten every other asset class,
every single decade between 1810 and now. You might make an argument that
things will change due to a technological singularity, but stock performance
has been remarkably consistent over the long run.

<http://caps.fool.com/Blogs/1802-2009-performance-of/282249>

~~~
HSO
You (or Siegel) may suffer survivorship bias. Yes, the US stock market has
performed well. But what about early Russian stocks, German stocks, French
stocks? I'd venture a wild guess that investors got pretty much wiped out
between 1917, say, and 1945?

Also, the chances are high that you can find some time grid for which "every
single decade" will show whatever you want it to show. For example, between
2000 and 2010, US aggregate stock market performance is... roundabout zero?

~~~
nostrademons
I upvoted you for insightful analysis, but I think survivorship bias might be
appropriate here. If the economy & political system changes the way it did in
Russia, Germany, and France, it's basically moot where you've put your assets.
You'll be wiped out either way; the important thing then is that you survive
and can rebuild afterwards.

As one of my mentors once told me, "Optimize for the case where we aren't
fucked, because if we are, there's nothing we can do about it." He was talking
about software architecture and startups, but it applies to finance as well.

~~~
_delirium
In some cases everything is equally bad, but not in others. In France, for
example, the stock market was wiped out, but lots of other assets survived the
war, especially property (land ownership wasn't generally interfered with),
and portable valuables like gold and jewelry. So if you were picking places to
put your money in 1935, there are definite winners and losers--- buying land
was a good option.

~~~
vorg
Diversify across geographies, e.g. always hold positions in America, Europe,
and China.

------
Ygor
Save money and invest for your entire life so you can be rich when you are
older. I don't know. A lot of people doing this end up spending their whole
lives making more and more money, only to realize in the end that they have
all the money they need, but very little time to spend it.

Why not spend your days earning as much money as you can, and using that money
to do the things you like. So, when you are older, instead of having 1 million
dollars in a bank, you have 1 million dollars worth of experience.

~~~
cageface
The goal should be to die with a bank balance as close to zero as possible.

~~~
nostrademons
I thought the goal was to live a happy life, whether that results in a bank
balance of zero or a few million.

The reason I save much of my income isn't because I want to be rich when I
retire. It's because I can't think of things to spend it on now that would
measurably increase my happiness. I'm not big on spending money just for the
sake of spending money - that way lies dissatisfaction and the hedonic
treadmill, as your desires increase faster than your ability to pay for those
desires.

I'd much rather think hard about what I want from life and then spend money,
carefully and judiciously, to achieve that. If it's not something I want, why
should I buy it?

Own your money, don't let you money own you.

~~~
cageface
Money is virtualized power. If you haven't used it all by the end then you've
left things undone. An unused tool is a worthless tool.

~~~
nostrademons
There is value in having the ability to do something, even if you never
actually do it. The options this gives and peace of mind that results is often
worth far more than actually exercising that power.

The best example, perhaps, is the military. The point of having a strong
military is so that you never have to go to war. You can enjoy all the
benefits of having won the war - economic power, national prestige,
international bargaining leverage - without actually having to fight it. Once
you start fighting, you've lost. Generals usually understand this.
Occasionally, you get a president or despot that doesn't (we in America just
had one), and the consequences generally aren't pretty.

I get enormous pleasure out of knowing that I don't _have_ to go to work. I
could quit any time I wanted to, and my savings would be enough to find
another job or get a company off the ground. That's worth a lot more to me
than a fancier car or a nicer place to live or a few skydiving trips. It lets
me enjoy what really is a pretty nice place to work rather than feeling
oppressed by The Man every day.

And I got that job because I could afford to wait another six months or so
after my last startup failed, until the right opportunity arose, instead of
needing to take the first job offered for financial reasons.

~~~
cageface
Certainly it's wise to keep some money in reserve through the course of your
life. Thanks to my savings I left a boring job last week and have the luxury
of taking my time to find or create something genuinely interesting to replace
it. In the final arc of your days though it's time to convert potential into
actuality.

As for the military, I don't think it's really analogous at all. At least in
the modern era a standing army is a constant drain on finances and a constant
temptation to extremely expensive mischief. How much healthier would the U.S.
economy be now if we had disbanded all conventional forces after WWII and
maintained instead a small but sufficient nuclear deterrent?

~~~
chopsueyar
I cannot speak for you, but I do have my own privatized security force.

------
sliverstorm
My experience in life thus far has suggested to me that it's not about saving,
but about growth and pushing forward. You can scrimp and save, but if you
instead put your resources to task and try to grow, you can move up to the
next level, where your savings from the previous level are a pittance.

It is of course inherently more risky, and requires effort, but it seems like
a better choice.

A case example is my uncle; a member of his family racked up some huge medical
bills due to a hospital's mistake decades ago. He is starting a somewhat risky
business venture, and I asked him why he wasn't instead getting a job and
working. He told me that the bills were so great that working a regular job
would never be able to pay them off, and so this was his only option.

~~~
starkfist
I am in the same position. I lived like a pauper for 5 years, saving all my
money. Then most of it got wiped out by a medical emergency. Now I just
maximize my income and quality of life. I spend way more money than I used to,
yet have also saved up about twice as much as I previously had. I do not
recommend the "scrimp and save" approach. As always, YMMV.

~~~
chopsueyar
Life is too short to not enjoy it.

------
maqr
> I’m a student of the market, the author of Investing 101 and can say with
> some authority that the market’s miserable decade-long performance is
> exactly what spells huge opportunity for you.

 _cringe_

~~~
Emore
That's where I stopped reading.

------
maigret
This article is pretty right on some points. Most millionaires are just good
earners (but not rich) who live under their financial capacity, and saved over
a long time. Because of the compound effect, it is also much more important to
save while young. But of course everything is a trade off: a good dinner for
networking or a set of new clothes (think you may have to buy a suit to meet
your first customer) can produce a positive return.

------
thansen
This is a particularly good counterpoint to some of the ideas in the article:

<http://www.economist.com/node/16479024?story_id=16479024>

* Even though stocks have fallen in the last decade, they are still historically expensive. Because the fell from such a high peak in 2000.

* The more people that follow the author's advice of investing in shares (the cult of equity), the worse their collective return will be.

* Unrelated but interesting is that high-yield bonds have outperformed stocks since 1995.

If you'd invested $1,000 a month since 1970 you'd be rich. Yes, but $1,000 a
month in 1970 was a lot of money. In 1970 the median household income was
around $800 a month (in 1970 dollars).

It'd be more informative to know how rich you'd now be if you'd invested in
stocks something like 20% of the median household income for the past 40
years.

~~~
Unseelie
I dug up information on the median household income, and the growth of the
S&P500, since 1975. Built a spreadsheet based on 10% of the median household
income, twenty percent being a huge, huge cut into the money a family could
spend at the median levels. Check it out:
[https://spreadsheets.google.com/ccc?key=t1GNFHQzYRcc4aWOlvZq...](https://spreadsheets.google.com/ccc?key=t1GNFHQzYRcc4aWOlvZq31A#gid=0)

------
georgecmu
This sounds like a standard spiel that financial advisors at your local bank
are trained to give. Even aside from all the problems with this sort of
'analysis' like using past to predict future, extrapolating from a small data
set, etc, the fact that their computation of past returns has no reference to
inflation should tell you that you'd be better off listening to someone else.

~~~
chopsueyar
FEED THE MACHINE.

------
intel4004
Also don't forget that the total inflation between 1970 and 2000 was 340%,
that is 4.03 millions of 2040 dollars would only be worth 0.9 million in
todays dollars if history repeats itself.

~~~
dantheman0207
Yes, but hopefully it doesn't. There was some nasty inflation during that
period. It could be worse, it could be better this time around.

------
PostOnce
If you make 10 dollars an hour and have an hour lunch, cutting 15 minutes off
your lunch nets you $50/month. Taking only a 30 minute lunch nets you
$100/month.

If that same 10-dollar an hour job isn't picky about overtime, showing up 15
minutes early and leaving 15 minutes late gets you another $100/month.

Show up 15 minutes early, take a half hour lunch, $200/month. On $10/hour,
that's not something to scoff at.

Easier to get rich by focusing on increasing your income, rather than saving
what you have, if you are on that low-level wage.

~~~
russell_h
If you make 10 dollars an hour, chances are you work fixed hours. At least in
my experience.

~~~
sjf
And you are already working those extra 15 minutes without the compensation.

------
krosaen
Saving is good, but the "miracle of compound interest" is hard to believe in
after a _decade_ where you literally would have been better off stuffing your
money under a mattress. Past returns are no guarantee of future gains, so the
argument that "we're at a low point and can only go up" doesn't really hold. I
mean, I hope the market will go up, I've been investing in a disciplined asset
allocation rebalance once a year style for the past 8 years, but, I'm just
sayin'

So if you don't invest the money in the stock market, where else? Yourself.
Live off savings and do a startup. Pay for education. Other ideas?

~~~
glork
Real estate.

------
lazyjeff
Yet another "spend less, invest in the market" article.

------
TGJ
The best advice I've ever heard on getting rich.

Get a job and bank 10-20% every week. Live on the rest. Get there faster? Get
a second job and bank all of that.

------
jasonkester
I've been telling this to anybody who'd listen ever since I started doing it
myself:

Continue living like a college student for 5 years after you leave college and
you'll never need to worry about saving for retirement.

It really is that easy. You're going from a state where you have $500/month in
expenses and zero income to a state where you have $5,000/month in income.
It's trivial to save $10k/year at that point unless you go out of your way not
to.

Even at 10% returns (which you can pretty much always get), your money will
double every five years. Don't touch it 30 years, and that's a lot of
doubling. And speaking of 30, that's when you can stop.

I essentially retired when I was 30 years old, and now just work the
occasional short contract to pay the rent. Meanwhile the stack keeps growing
in the background, waiting for grey-haired Jason to retire on it 20 years from
now.

~~~
roadnottaken
What planet are you on where 10% returns are easy to get? Interest rates are
about 1% right now for fixed-return investments. It seems to me that there's
no such thing as a safe investment these days and there hasn't been one for a
while. Please advise!

~~~
jasonkester
This one. Here's the S&P 500 since 1950 (as far back as Yahoo has data, but
the stock market as a whole looks pretty much like that back to 1800):

<http://is.gd/dWQmU>

See if you can find a 30 year slice of that chart where it doesn't average 10%
annual returns.

If you're investing for retirement, that's how much time you have. Patience...

------
basman
hmm, so I guess by this argument, if I flip a coin 3 times and it comes up
heads, the next time is more likely to be tails...

~~~
bengebre
The argument is that stock market returns are not a random process but exhibit
mean reversion:

<http://en.wikipedia.org/wiki/Mean_reversion_%28finance%29>

In short, large deviations one way are more often followed by large deviations
the other. If mean reversion is true, the coin flipping analogy is not an
accurate one.

------
Qz
Don't know about the stock thing, but finding a cheap city to live in
(Pittsburgh being one) and living like you're a poor college student is
definitely one way to save a crapload of money. What some people earn and
spend in a year will probably last me 3-4 years if not more.

~~~
prodigal_erik
How's the pay, though? I moved to the Valley because the extra income is much,
much more than the extra costs. I wouldn't want to move somewhere cheap unless
I either stopped working, or started a business with income not connected to
the local wages.

~~~
natrius
The extra income in the Valley _isn't_ enough to make up for the increase in
cost of living compared to many places, such as Austin, where you can also
find good tech jobs.

[http://swz.salary.com/costoflivingwizard/layoutscripts/coll_...](http://swz.salary.com/costoflivingwizard/layoutscripts/coll_start.asp)

~~~
prodigal_erik
What I get from that is "The cost of living in Austin, TX is 26.4% lower than
in San Jose, CA" and "Employers in Austin, TX typically pay 20.9% less than
employers in San Francisco, CA." Pretend I make exactly $100k here and pay 33%
tax. Moving to Austin costs me $14k in net income (0.209 * 0.67 * 100000), so
my living expenses here would have to be at least $53k (14000 / 0.264) just to
break even by reducing them.

But that would mean I'd been spending over 79% of my net income just in living
expenses, which to me sounds too precariously balanced to be sustainable. In
reality I make somewhat more and save half of it, so I'd barely come out ahead
if my rent in Austin dropped to $0.

~~~
natrius
You can't throw taxes into the mix without knowing whatt the site is using to
calculate cost of living. (I don't know either.) I'd assume that taxes are
already included since that's part of what'd you'd consider when moving
between areas, and is another area where you'd save by moving.

If we assume that taxes are included: Moving to Austin costs $20.9k in total
salary. Total expenses would have to be $79,167 ($20,900 / 0.264) or less for
the Valley to win out. If the hypothetical person saves more than $20,833 a
year (after taxes since we're assuming those are part of the cost of living),
having higher earnings is preferable to having a lower cost of living to
increase the size of the savings. Many people don't save that much.

You also chose San Jose as the city for the comparison, when most people I
know prefer to live in San Francisco, where the cost of living is even higher.
Moving to Austin from San Francisco supposedly results in a 42.7% decrease in
cost of living. You'd have to be saving $51,053 after taxes for moving to be a
bad idea financially.

~~~
prodigal_erik
Yeah, I should have just chosen San Jose (as a proxy for "outside San
Francisco") rather than that weird SF/SJ split I chose just because many
colleagues and I happen to commute there from the valley. And you're right
that they may be including taxes, but a lot of that is federal so I wouldn't
expect to see a big difference. SF->Austin just demonstrates what a bad deal
SF is financially, because SF->SJ gets you half the savings (22%) with no pay
cut at all.

------
quizbiz
What I've been working on is a way to make the value of my tuition while in
school. I think I can figure out a marketing service I can sell for $100/week
but I can't figure out how to scale it. The challenge of making 50,000/year on
my own is fun to ponder but I'm not making much progress.

~~~
larsberg
Exploit the learning and networking resources at your school instead. If you
show that you are motivated, there are faculty who will be happy to teach you
everything you want to know for zero extra dollars, and might even pay you a
small stipend for it. You are surrounded by smart, motivated co-students in a
way you will not be when you enter the workforce and more than half of your
colleagues enter a downward spiral of mediocrity and low-grade alcoholism.

After you graduate (unless you're in the humanities or something), 50k is
really just not that much money. And certainly not worth missing out on once
in a lifetime opportunities for.

------
csl
I can understand this if I invest in something like an index fund, which is
updated regularly to reflect a particular stock market. But it doesn't help if
I invest in companies X, Y and Z. They might go bankrupt, in which I will lose
my money completely.

------
tlrobinson
"because of the really rotten returns in the 1930s, investors could expect a
“catch-up” decade and they got it."

I'm not sure it works like that...

------
startuprules
The S&P, adjusted for inflation, has returned -30% for the last ten years

But go ahead and feed the machines at goldman sachs some money.

~~~
Retric
That's only if you put your money in a the start, put 100$ in every week
inflation adjusted and you will have made money over the last 10 years.

PS: I made over 40% last year just buying mutual funds in my 401K. Look for
the worst 40 years to dollar cost average inflation adjusted and your return
is going surprise you.

------
binaryfinery
Translation: I need to exist stocks into cash before you idiots realize we're
in for a severe bout of deflation.

------
itisfritz
12000 X %473(inflation) = $5,676,000

This is why I don't trust banks. Realistically you would of been smarter to
buy capital that could immediately help your situation.

It seems to me bettering yourself as a person with that money results in
greater gain.

[http://inflationdata.com/Inflation/Inflation_Calculators/Inf...](http://inflationdata.com/Inflation/Inflation_Calculators/Inflation_Rate_Calculator.asp#calcresults)

~~~
Retric
No, 12000 X 473% = 12000 X 4.73 = 56,760.

