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Fact Check: How Long Would It Take To Become A Millionaire Via The Stock Market?

By Investing.com (Clement Thibault/Investing.com)Stock MarketsMay 21, 2019 03:37AM ET
www.investing.com/analysis/fact-check-200423312
Fact Check: How Long Would It Take To Become A Millionaire Via The Stock Market?
By Investing.com (Clement Thibault/Investing.com)   |  May 21, 2019 03:37AM ET
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The holy grail question of investing: Is it really possible to become a millionaire by investing in the stock market, and if so, under what circumstances?

While many people are attracted to the stock market by the potential for profits and return on capital with very little effort, it's never a sure thing. Many financial advisors, banks, and financial education providers, have an incentive to promote the idea that one can get rich by investing in the stock market. Their livelihood depends on attracting potential customers, and sometimes promotional materials can be misleading.

In addition to the well-intentioned professionals, there are also professional scammers, who promise impossible returns in a short amount of time only to run off with your money.

So, after taking all that into account, what chance is there of making a million on the equity markets? Today we take a look at how long it might take, and how much ready investing cash would be needed to reach that magic 7-figure number via the stock market.

Can A 'Regular Joe' Become A Millionaire?

First, we’ll focus on the total performance of the S&P 500, the leading U.S. large-cap index. Extensive research has shown that out-performing the S&P 500 over a long time period is very hard, and we’re interested in seeing whether any ‘Regular Joe’ can become a millionaire. We’ll reinvest all dividend payments in the market.

Second, we have to make certain assumptions on stock market returns based on past performance. As many disclaimers state, past performance is not indicative of future performance, but for our theoretical exercise, it’ll do.

Third, we’ll invest as part of our IRA, or in other words - we will not take taxes into account. We’ll also adjust the returns to inflation, to make sure we have a million dollars in purchasing power, and not just a nominal million.

As you can see, this seemingly simple yes or no question requires quite a bit of mental gymnastics, and we even haven’t gotten to the math part yet.

How Fast Can Investments Grow?

Over the past 70 years, the S&P 500’s compound annual growth rate (CAGR) is 7.56%, after adjusting for inflation and reinvesting dividends. Essentially, this means that over the past 70 years you could replace all the bubbles, crashes and inflation in a steady 7.56% growth a year, and get to the exact point we are at today.

Based on this rate, we can now calculate how fast someone can get to a million dollars based on three variables: the initial amount invested, an additional annual investment, and the years the money would take to compound.

Let’s start with an easy example. With only an initial investment of $1,000 and a CAGR of 7.56%, it would take you 95 years to cross the $1 million threshold. With only $1,000, you can create a millionaire 5 generations from now. That’s nice, but not exactly what we're after. With an initial investment of $10,000, it would take you 64 years to reach $1 million. Again, not great.

How Much To Invest?

The question then becomes, how big of an initial investment do you have to make to become a millionaire in more reasonable timeframes, say - 10, 20, 30, and 40 years.

To become a millionaire within 10 years, you’d need to invest a hefty $485,000. You’ll need about $235,000 to make it in 20 years, $115,000 to make it in 30 years, and $55,000 to make it in 40 years.

Now, let’s evaluate a far more common scenario, of a smaller initial investment with annual additions. Again, let’s start on the low end of the spectrum.

If you can make an initial investment of $1,000 and invest another $1,000 yearly ($83 a month), it’ll take you 58 years to amass a million dollars. Not great, but a lot better than the 95 years we previously needed. Similarly, with an initial investment of $10,000 and a yearly addition of $3,000 ($250 a month), it’ll take you 41 years to get to a million dollars.

For those of us with no initial investment but more money to spare on a monthly basis, you can become a millionaire by investing $1000 every month for 27 years. Over those 27 years, you’d have invested $324,000 and earned $726,000 from the stock market. Add an initial investment of $100,000, and you can shave 7 years off and become a millionaire in 20 years.

Lastly, if you have $100,000 and $25,000 to invest every year, you’ll get to a million dollar in exactly 15 years.

All The Options

Here’s a summary table with the many options we’ve covered:

Summary Table
Summary Table

Becoming a millionaire by investing in the stock market is possible, but it’ll take time. There are no shortcuts to wealth, and it must be accumulated and compounded over time. Unsurprisingly - the more money you have, the faster you’ll get to the coveted threshold.

Fact Check: How Long Would It Take To Become A Millionaire Via The Stock Market?
 

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Fact Check: How Long Would It Take To Become A Millionaire Via The Stock Market?

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C Am F G
C Am F G May 23, 2019 2:57PM ET
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Yes, but if you really want to start using that money, you must sell your investments and at least where I live the taxes for those winnings would be about 35%, so in fact you would need to have at least 1,5 million to actually become a millionaire after you sell.....
Solomon Lalani
Solomon May 22, 2019 11:58PM ET
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With a reasonable day-trading plan, and eyeing 1% return per day, on an account size of 10,000, you can become millionaire in 540 days (2 years, 270 trading days / year). Formula 10,000 x 1.01^540 = 2.15m.  Assume you had half of these as bad days and half of these days you reached your target.  Forex account with high leverage and hedging possibilities work the best.  Discipline is the most important one in this: stick to a fewer instruments you understand (and know at the back of your hands), cut your losses (now that's critical) and let your profits run.
Gustavo Cervantes
Gustavo Cervantes May 22, 2019 11:58PM ET
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you cant day trade with $10000. a minimum of $25000 is necessary
HelliumStar ..
HelliumStar .. May 22, 2019 4:43PM ET
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Just change game that you play (regular stock equity like S&P500 market) with FX market insted! And if you are self-control, smart and not moneygrubbing guy you should become millioner in short period of time!
Nj Paust
Nj Paust May 21, 2019 6:21PM ET
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Nice article BUT I know of a handful of dividend stocks that turned 10 grand into over 7 figs over the last 23 years based on CAGR. Just AMZN alone would have made you a MULTI-millionaire.
Romy Romeo
Romy Romeo May 21, 2019 3:07PM ET
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Lesson learned: Stock trading is more profitable than investing
Nj Paust
Nj Paust May 21, 2019 3:07PM ET
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Faster profits with low float stocks and parabolic volume spikes.
Michael Bilin
Michael Bilin May 21, 2019 1:48PM ET
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If you invested in amazon 2000 dollars you would a millioner in 20 years
Boon Sin Thye
Boon Sin Thye May 21, 2019 12:38PM ET
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atlease.yes.
Charles Clymer
Charles Clymer May 21, 2019 11:57AM ET
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You can day trade futures and not be subject to pattern day trading.
Jim Gregory
Jim Gregory May 21, 2019 11:56AM ET
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nice article Mr.Thinault. I have a question. do you take recession into consideration for this?
Mario Valenzuela
Mario Valenzuela May 21, 2019 11:56AM ET
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Jim Gregory, he explains he takes inflation into account, and Recessions and Boom markets even out.
Jim Gregory
Jim Gregory May 21, 2019 11:56AM ET
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thanks Mario
Nicolò Roscini
Nicolò Roscini May 21, 2019 11:20AM ET
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I like this article, but I don't think that people should put all their hopes on what is written here. Investing is great, but you have to remember that Clement spoke about investing and leaving the money inside the market. Some people can understand when market bubbles are going to explode and then "withdraw" money from the market. It is clearly written that the 7.56% CAGR is composed even by recessions periods. All the calculus above are a perfect example of a passive investor, an active investor I think can have better results at the end of the year (for example, he can try to avoid market bubbles explosion or try to reduse their effect on its stocks...). Think about it people, before starting to borrow money from the bank to put them on the S&P500 so your great-grandchildren will be a millionaire
Nicolò Roscini
Nicolò Roscini May 21, 2019 11:20AM ET
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with "some people can understand when market bubbles are going to explode" i mean the ones that are really going to become millionaires
Mario Valenzuela
Mario Valenzuela May 21, 2019 11:20AM ET
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Nicolo Roscini, he talks about an average Joe becoming millionaire, the People Who really knows to time the market (if there's any) Will achieve it much earlier, while the People Who think they can do it will fail to ever do it.
Ankush Kanodia
Ankush Kanodia May 21, 2019 11:11AM ET
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i think he is talking about investment and not trading... trading is a business
Jasmin Downing
Jasmin Downing May 21, 2019 11:10AM ET
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Camtheman did it in less than one year by day trading with 1000$ investment so yes it is possible!
Kory Cassell
Kory Cassell May 21, 2019 11:10AM ET
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Really with $1000. How did he not get flagged as a pattern day trader?
Nj Paust
Nj Paust May 21, 2019 11:10AM ET
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Thanks for that tip Jasmin! I looked him up and voila, well not giving ANY of the "secrets" away.
Nj Paust
Nj Paust May 21, 2019 11:10AM ET
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What I meant is that I'm not giving any of the secrets away. He shares ALOT for free and w/a paid mentorship. TY again Jasmin. [update]
Vic Kharadjian
Vic Kharadjian May 21, 2019 11:08AM ET
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Great article! One question though?Which index are you referring to?
Nicolò Roscini
Nicolò Roscini May 21, 2019 11:08AM ET
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He is referring to the S&P500
Percy Smith
Percy Smith May 21, 2019 11:05AM ET
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That's why we trade forex not stovks... much better returns.
Nicolò Roscini
Nicolò Roscini May 21, 2019 11:05AM ET
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Only because you don't know how to trade stocks this doesn't mean that forex is better. Clement wrote about "investing", not speculating. If a stock investor would start speculating on stocks like you all do on forex he woudl become millionaire faster than you
Filipe Pereira
Filipe Pereira May 21, 2019 11:05AM ET
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CFD contract for difference overstocks are easy. bollinger bar work pretty Well on Stocks otherwise then but also fundamental s of course!
Due Microlotti
Due Microlotti May 21, 2019 11:05AM ET
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Nicolò :  broker becames millionaire
Nj Paust
Nj Paust May 21, 2019 11:05AM ET
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Stock market has made more millionaires than either fx or futures; and that includes us average joes. Plus we keep the wealth and then pass it down generations.
 
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