In this article, I wanted to understand how long it takes to become a millionaire. Therefore, I drew inspiration from several examples and some calculators 😉
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This article covers all currencies, such as the Swiss franc, the British pound, the euro, and the US dollar. For simplicity, I will only use examples in USD. Remember that you can replace USD with your country's currency.
When you start investing, becoming a millionaire seems completely unrealistic.
We often say to ourselves:
" I would need to earn a lot more money.»
However, it is generally not the salary that makes the difference.
The true engine of wealth, the key to becoming a millionaire, has a name: compound interest.
At first, when you start investing, compound interest seems almost non-existent.
Then, almost without us realizing it, they start working in our place. And it is precisely at this moment that everything accelerates.
In this article, we will discover how long it actually takes to reach one million dollars under different scenarios.
⚠️ The figures presented are simulations based on historical returns. Past performance is never indicative of future results. Investing involves the risk of capital loss.
The 5 factors that determine how quickly you will become financially free
Many believe that to become a millionaire, you just need to choose the “right investment”.
In reality, five variables greatly influence the result:
- how much do you invest each month
- the capital you already own
- the average return on your investments
- the number of years you remain invested
- the amount you will need once you are financially free
Four investors, four different destinies
Now let's imagine four people.
They all invest regularly, but with different starting situations.
| Clara | Patrick | Xavier | Marc | |
|---|---|---|---|---|
| Amount paid each month to invest | 300 USD | 500 USD | 600 USD | 800 USD |
| Initial capital already invested | 20,000 USD | 20,000 USD | 50,000 USD | 100,000 USD |
| Net annual profitability (Forecast) | 7% | 7% | 7% | 9% |
Their objective is identical:
➡️ generate $3,000 USD per month thanks to their investments.
With a conservative withdrawal rate (4% per year), this represents approximately $900,000 in assets to achieve.
Here is the time it will take each person to achieve this.
| Clara | Patrick | Xavier | Marc | |
|---|---|---|---|---|
| Number of years before becoming FIRE | 38 years old | 32 years old and 8 months | 27 years old and 6 months | 18 years old and 3 months |
The result is striking.
Marc achieves his goal nearly twenty years before Clara.
For what ?
Not because he is more intelligent.
Because he:
- invests more each month
- has a larger starting capital
- benefits from a better return on his investment
If Marc starts investing at the age of 20, he will be financially free at 38.
Reaching the first $100,000 is… the hardest part
This is probably the most interesting graph in the article.
For an average yield of 7% net, Without additional personal investment, here is the time required to reach each $100,000 milestone.
| Initial amount (USD) | Final amount (USD) | Time required (years) |
|---|---|---|
| 10,000 | 100 000 | 27 years old |
| 100 000 | 200 000 | 10 years |
| 300 000 | 400 000 | 4 years |
| 500 000 | 600 000 | 2 years |
| 800 000 | 900 000 | 2 years |
| 900 000 | 1 000 000 | 1 year |
What immediately stands out is that the first $100,000 requires a great deal of patience.
On the other hand…
Once $100,000 is reached, it will be very quick to surpass each subsequent $100,000 increment.
For example, switching from $900,000 to $1 million only needs about 1 year and 4 months.
Why such a difference?
Because after $100,000, the profits are greater.
For example, if you have $1,000 USD and you earn 15% in the year, then you earn $150 USD.
On the other hand, if you have $100,000 USD and you earn 15% in the year, then you earn $15,000 USD.
In truth, each time you add $100,000, the next tranche arrives faster thanks to compound interest.
Therefore, it is highly recommended to generate income and quickly invest the first $100,000, as gains will follow quickly (if the investment is wise).
from 250,000 to 1,000,000 USD
Now let's imagine another situation.
You already own USD 250,000 invested.
Then you decide… to add nothing more.
You simply let the returns accumulate.
With an average return of 7% per year, it will take you approximately… 20 years for your net worth to exceed one million dollars.
And all this without investing a single extra dollar. That's the power of compound interest.
If you have $250,000 USD and you invest a relatively small amount each month, say $300 USD per month, you will be a millionaire in approximately 17 years.
We conclude that with an investment of USD 250,000 and a good return, it is possible to become a millionaire quite quickly, even by adding little money each month.
Investing only $500 USD per month?
I wanted to take a more cautious approach.
Let's imagine a person who invests 500 USD per month, with a more conservative average return of 5% per year.
| Number of years | Money saved from his pocket | Money earned only in compound interest | Total accumulated money |
|---|---|---|---|
| 5 years | 30,000 USD | 4,051 USD | 34,051 USD |
| 10 years | 60,000 USD | 17,511 USD | 77,511 USD |
| 15 years | 90,000 USD | 42,977 USD | 132,977 USD |
| 20 years | 120,000 USD | 83,768 USD | 203,768 USD |
| 25 years | 150,000 USD | 144,118 USD | 294,118 USD |
| 30 years | 180,000 USD | 229,429 USD | 409,429 USD |
The first few years can seem discouraging because the income is low. After five years, the interest amounts to barely a few thousand dollars.
But then… everything changes.
Compound interest begins to generate more wealth each year.
After thirty years:
- you invested USD 180,000 from your pocket; ;
- interests have created nearly $230,000 additional.
Your money now generates more wealth than your savings. And without requiring any effort from you.
Account 3a, the lazy and profitable method
For a resident of Switzerland, it is very easy to invest to benefit from long-term compound interest and… save on taxes.
It's via a 3a global 100 account.
In reality, some 3a accounts allow you to invest 99% of your savings in the stock market via stock market indices or ETFs.
In my opinion, historically, the best 3a accounts that combine diversification and profitability are:
- finpension 3a global 100
- viac 3a global 100
At the time of writing, the annual return is approximately 7-9% per year over 10 years in CHF (or 8-10% per year in USD).
The tax savings and returns are excellent in the long term.
For example, let's imagine a monthly contribution of CHF 550 and annual tax savings of CHF 750. Here is the return over 25 years, assuming a return of 7% per year:
| tax savings over 25 years | 18,750 CHF |
| customer's contribution 3a | 165,000 CHF |
| compound interest yield | 268,271 CHF |
| 452,021 CHF |
25 years later, the client has:
- earned almost 300,000 CHF just from compound interest
- over 430,000 CHF in his 3a account to enjoy his retirement
- saved over CHF 18,000 in taxes
And for a 5-minute job per year (creating a monthly transfer of 550 CHF to his 3a account), there is no management to do for his financial investment.
At the time of writing, if you open a 3a account with Finpension, we each receive CHF 25 (subject to certain conditions). Here's my code to use to open your account:
9NHWDL
What can be done to accelerate financial independence?
After this chapter, you're wondering how to accelerate your financial independence?
Here are my five main tips for accelerating financial independence:
save as much as possible
Optimize your spending to save money; it's easier to become a millionaire with low spending than with high spending.
choose a Diversified ETF
Today, it's easy to invest in diversified passive investments with a historical return of 8-12% gross per year over 10 years, such as an S&P 500 ETF or a global multi-sector ETF (e.g., VT). While past performance is not indicative of future results, it's important to consider it.
So, analyze your favorite ETF, with its strengths and weaknesses.
invest the maximum amount in an ETF today, and every month
Invest now and every month in your chosen ETF. Remember that every month you don't invest costs you money and delays your financial freedom.
be patient
It's rare to become a millionaire quickly. Give your investments time to grow. Don't hesitate to wait at least 10 years. Time is an investor's friend when it comes to building wealth.
Generate new revenue
To invest more, create new sources of income. For example, look for a second job or monetize a passion. This will help you reach passive income faster.
Conclusion
Time is your best investment
Many believe that becoming a millionaire is reserved for people who earn an exceptional salary or take excessive risks. However, the simulations presented in this article show a very different reality.
The real secret to wealth accumulation lies in regular investment, patience, and the power of compound interest.
The first few years are often the most difficult, as the gains are very modest. But afterwards, the more your capital grows, the more it works for you.
This explains why reaching the first 100,000 USD requires much more effort than switching from 900,000 USD to 1 million USD.
Whether you invest in a global ETF, an S&P 500 ETF, or another long-term investment, the principle remains the same: Starting early is often better than investing more later.
If your goal is to achieve financial independence (FIRE), don't look for the miracle investment. Instead, focus on the things you can actually control:
- invest regularly
- gradually increase your savings capacity
- to remain invested over several decades
- avoid giving in to panic during market downturns
- give compound interest time to grow
- Choose a profitable ETF that matches your profile
Ultimately, becoming a millionaire is not necessarily a matter of intelligence; it is often a matter of financial discipline and patience.
The best time to become a millionaire was 10 years ago. Since we can't go back, the best time to invest and become a millionaire is… today.
FAQ: Becoming a millionaire through compound interest
How long does it take to become a millionaire through investing?
The time it takes to become a millionaire depends primarily on your starting capital, the amount invested each month, the average annual return on your investments, and your investment horizon. With an average return of 71% per year and regular investing, reaching 1 million can take between 25 and 40 years, depending on your circumstances.
What annual return is needed to become a millionaire?
An average yield between 7 % and 10 % per year This range is often used in long-term simulations. Historically, global stocks and some ETFs have delivered performance close to this range over several decades. However, past performance is never indicative of future results.
Why is compound interest so powerful?
Compound interest allows you to generate gains not only on your initial capital but also on the interest already accrued. The longer the investment period, the greater this effect becomes. This is why the first few years may seem slow, while the later years see a significant acceleration in wealth growth.
Is it possible to become a millionaire with a global ETF?
Yes. Many investors use a global ETF as their primary investment to build wealth over several decades. Thanks to its international diversification and low fees, a global ETF is a popular long-term investing solution. However, its value can fluctuate, and no future returns are guaranteed.
How much do you need to invest each month to become a millionaire?
There is no universal amount. The more regularly you invest and the earlier you start, the greater your chances of reaching a million. Even a few hundred dollars or euros invested each month can generate significant wealth through compound interest over several decades.
What is the most effective investment to benefit from compound interest?
Long-term investments such as diversified ETFs, stocks, or certain investment funds are often preferred to fully benefit from compound interest. The key is to remain invested long enough to allow the capital to grow.
Is it possible to become financially free without being a millionaire?
Yes. Financial independence (FIRE) depends primarily on your annual spending. A low-spending individual can achieve financial freedom with well under a million dollars, while someone with a high-spending lifestyle will need significantly more capital.
Why are the first 100,000 the hardest to reach?
At the beginning of your investment journey, most of your wealth comes from your personal savings. Compound interest remains relatively low. Once you have accumulated significant capital, the returns generated by your portfolio become increasingly higher, which considerably accelerates the growth of your wealth.
Should you start investing as early as possible?
Yes. Time is one of the most important factors in investing. Starting to invest early allows you to benefit from compound interest for a longer period. Even with modest amounts, several decades of growth can make a significant difference.
Does compound interest guarantee becoming a millionaire?
No. Compound interest increases the growth potential of an investment, but it doesn't guarantee any results. Financial markets fluctuate, and every investment carries a risk of capital loss. It's therefore important to invest according to your risk profile, investment horizon, and to diversify your financial investments.
The Time It Takes to Become a Millionaire
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