How to turn $20,000 into 1 million
In less than 6 years!
I witnessed an interesting experiment the other day using an compounding calculator. The presenter started with $20,000 and compounded it monthly, starting with 2%, and showed that it would take 16 1/2 years (199 months) to turn that 20,000 into 1 million. At 3% it took just over 11 years (134 months), 4% 8 1/2 years (101 months), and at 5% it took just 7 years. Nothing new here.
However the presenter then added an extra element or dimension to the calculation, and that was - additional periodical deposits. Here is how it went; starting with $20,000 and compounding monthly at 2%, and adding $500 a month from another source, the 20,000 turned into 1 million in only 13 1/2 years, 3 years less than the example above without the periodical additional deposits. Depositing $1000 a month, compounding at 2% a month, the 20,000 turned into 1 million in only 11 1/2 years. In fact, if you take $20,000, compound it at 5% per month and deposit $1000 a month on top, you’ll turn that 20,000 into 1 million in 5 3/4 years, or just 69 months.
Now, this is not to say you can make exactly 5% every month, or that you are able to deposit $1000 every month, because as we all know, things happen. But my point is that if you set even modest short term goals, and show some patience, big rewards can be reaped.
I had an interesting phone call a few months back where a guy had told me his goal was to make 20-30% a month from trading, and I said ‘that’s great!’. But he then asked me if I make this same amount and I said no I don’t. Well I haven’t heard form this soul since.
What I didn’t have the chance to tell him was that I don’t need to make 20-30% a month, nor do I want to, and the simple reason is because it would demand too much of my time to do so. You see, financially I don’t need to make 20-30% a month, not as a trader, nor as the head of my family, as we are diversified; my wife has her own business, we have investments and so on.
I treat my trading, any investments, jobs, businesses we conduct and so on as a means to reach a goal. My passions on the other hand are a completely different matter, however for the sake of this post; we’ll concentrate on the goals.
Setting goals is the basis of trading. If you don’t set a goal, it aint gonna happen! But setting goals also means setting out a plan of attack or a road map, much like the presenter above. If you want to become a millionaire for example, and you only have $20,000 you have several options, and all those options come at a price. Using the plan above of compounding monthly and depositing extra money (in other words you are treating your trading account as a savings account also), the cost is that you will have to be patient (time - although compare this to working 45 years….). Another option is throw the whole $20,000 at the markets and hope you strike it lucky, and of course the cost here is the immense risk.
The difference between the two methods just mentioned is that although the goals are the same, one has a road map and the other is just wishful thinking. Sadly, a friend of mine who was successful in property burnt himself out with trading. He tried for two years, he stuck to one stock and traded full time, however when I suggested he should set a goal and a plan of attack etc, he scoffed at it. Not that he needs to trade, he’s set financially, but as he didn’t have a destination in place for his trading, there was nothing to guide him, he was basically trading from the edge of his seat, and the markets eventually found him out.
Happy Trading
Dean Whittingham
Elite Insiders Group - Trading Systems
Financial Market Fisherman © 2004 - 2007
