How to Become a Millionaire the Hard Way

In my weekly Forbes column, I published an article on how to become a millionaire in under 20 years. There’s no mystery to it. Save a reasonable amount of money each month (maxing out a 401k will get the job done) and invest it wisely in low cost index funds. Done and done.

And then I get an email that really angered me. It was from Tony Robbins. Yes, that Tony Robbins. No, it wasn’t a personal email. He was promoting an investment advisor firm he’s recently joined called Creative Planning. So what’s the problem?

He emailed me a link to an interview he did with the founder of Creative Planning, Peter Mallouk. I had never heard of Creative Planning or Mr. Mallouk, but I listened to the interview. It turns out that Tony Robbins is a partner of the firm. One of the points being made was how important it is to keep your fees low. Tony (I feel like he and I are on a first name basis) pointed out how even one percent can make a big difference. He invoked John Bogle, founder of Vanguard, as support for the importance of fees. So far, so good.

After I listened to the interview, I decided to look up the fees Creative Planning charges. It turns out it’s not easy to do, which is always, always a red flag. I searched high and low on its website to no avail. Finally I found a chat feature on the website and asked about their fees. They start at 1.2%!

If you are new to Dough Roller, 1.2% may not seem like a lot.  Well, let me tell you: it’s a fortune. If you invest $1,500 a month for 40 years and earn 6.8% after fees (instead of 8% without fees), the difference in your retirement nest egg is huge. Care to hazard a guess?

$1,513,630.27. So yeah, 1.2% is kind of a big deal.

Now to be fair to Creative Planning, their fees do go down if you have more to invest. According to the firm’s Form ADV, the fee drops to 1% for assets between $500,001 and $2 million. And if you have more than $50 million (I’m not kidding) the fee goes all the way down to 30 basis points. (That’s what Vanguard charges with just $50,000 in investments, by the way.)

So all of the above led me to the idea of today’s article and podcast.

How to Become a Millionaire the Hard Way

Assume we can save $1,000 a month. How long will it take us to accumulate $1 million?

1.     The Hard Way: If we stuff the $1,000 under the mattress each month, it will take us 1,000 months to accumulate $1 million ($1 million / $1,000 = 1,000 months). That translates into 83.3 years, so basically you’re looking at the year 2100.

Note too that with even modest inflation, say 2%, you’ll never accumulate $1 million in today’s dollars. Eventually the 2% will eat away at more than the $12,000 you’re saving each year. Fortunately, we can do better than the Mattress Mutual Fund.

2.     Fixed Income Portfolio (5%): Assuming a 100% bond portfolio we can expect to earn about 5% on average over a long period of time. This and the other return assumptions in this article are taken from Vanguard’s model portfolio allocations based on data from 1926 to 2015. At 5%, it will take us 33 years to build up a $1 million nest egg. A lot better than 83 years, but still not great.

3.     The 50/50 Portfolio: A portfolio of 50% stocks and 50% bonds has returned just over 8% since 1926. With this return, it takes just 26 years to become a millionaire.

4.     The 70/30 Portfolio: Increase the stock allocation to 70% and the returns jump to about 9%. It also reduces our time to the cool $1 million to 24 years.

5.     The All Stock Portfolio: Finally, we can hit the $1 million mark in 22 years with a 100% stock portfolio. While the ups and downs are bigger, the average returns climbs above 10%.

These returns don’t account for fees or taxes. Let’s look at fees. Using the 70/30 portfolio and adding an asset management fee of 1.5% adds three full years it will take to become a millionaire. During this same time it takes to accumulate our golden nest egg with a 1.5% fee, our no fee portfolio climes to over $1.36 million.

Fees matter. A lot. Sorry, Tony.

Topics: wealth

8 Responses to “How to Become a Millionaire the Hard Way”

  1. Hi Rob,

    I enjoy listening to your podcast. I was a bit disturbed by your most recent podcast when you discussed a specific wealth management firm. You made some general comments about fees which are valuable but to specifically comment on a set of services about which you do not have other specific information seems to me to be wrong.

    I consider myself a fairly well informed investor. For many years I did all my own investing using low cost need funds. As I got older and wanted to adjust my investment strategy as retirement got closer, I decided to look into a wealth manager.

    Like you, I take fees very seriously and understand their drag on my returns. I spoke to people at the big companies. I spoke to people who gave advice at Schwab, Fidelity, Vanguard, etc. for a fee. It seemed to me I was speaking mostly to middle men who would then offer me a selection based upon a more senior person’s advice not for me, but for a group of people like me. To get more specific advice, meant a bigger fee. I would pay that fee each time I would meet with them to adjust my account. While this seemed better than what I was doing, I decided to look at other options as well.

    I eventually settled on Creative Planning. I looked at the fees, what I was getting and what their investment approach was. They do not use high fee funds. While you did not accuse them on doing so on the podcast, you certainly hinted that they might. I think you should have avoided that suggestion unless you knew that to be true. Their basic investment strategy was very similar to mine. However, I felt that they offered me more options and expertise in longer term and retirement planning. They actively tax harvest when the need or option arrives. This was different than what some of the fee only people did when they would tax harvest on a schedule which may not have been best.

    Ultimately I decided that I needed them to do 1% better than I would so myself. Actually less if I took into account savings from doing tax harvesting better than I did and also figured in the cost of advice that I would possibly be paying a fee based person anyway. For me it made sense.

    Bottom line is that I think your comments on a specific management company were too strong and maybe without full knowledge. For sme people this investment approach will make sense. For others it will not. To make a blanket statement about a company you admitted you knew nothing about was probably too strong.

  2. Curt Smith

    Nice article. More millionaires are created buying real estate for the rental income and capital appreciation. Flipping does not create wealth, it’s another form of a job. Passive (rental) income combined with appreciation creates wealth fastest.

    True not everyone has the drive and persistence to have a side gig actively buying, rehabbing, renting out real estate. Your local REIA(s) are where you meet experts and learn the ropes.

    My wife retired from teaching and we took her 403b with $200k and moved it to a self directed IRA and bought rentals. In 5 years that $200k has grown to $960k of equity and throws off $7k/mo. Enough to live off if one wanted to and was older than 59.5 without touching the principal. When you invest in rentals and you re-invest the rent into new rentals, the portfolio grows exponentially pretty quickly especially if you REFI out equity to buy more rentals. Our goal is living off the rent, never touching the principal.

    I can’t give an exact answer how long it’d take to start at zero and end up at $1M, but it’s shortest when you are buying rentals in nice areas, with good schools. Rentals in good school districts appreciate the fastest. Don’t chase cheap rentals in rough areas, yet don’t over pay in nice areas, keep your cap rate at or above 10%.

  3. The Easiest Way to Become a Millionaire is to be on the receiving end of those fees like Tony, or of Endorsed Local Provider kickbacks, like Dave.

    It’s not at all difficult to DIY a simple three-fund or four-fund portfolio, perhaps with a little slicing, dicing, and tilting if that’s what you’re into. It is well worth it to read a few books and sites (like this one, Bogleheads, etc..) to save millions over the course of a lifetime invested.

    I have also run the numbers and written about how investment fees can demolish a portfolio. A physician who lives to 100 could see an EIGHT-figure difference in the ending balance of her portfolio. It’s hard to fathom until you get cozy with Excel and see the numbers in front of you.


  4. This is interesting. I’m trying to get to 1M in Vanguard in next 5-10 years. I need to get into some more higher risk mutual funds. Any that you can recommend? Just hit 201K today, and I’m really looking to get there!!! Thank you for the article.

  5. Well, the 50/50 or better still, the 70/30 sounds pretty good. The 100% stocks appears too risky. Besides, the 9% return on 70/30 portfolio is very close to that (10%) of the 100% portfolio.

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