Richard Ziglar: “USA Today had an article on ways to become a millionaire. It gave different odds on one’s success depending on the method. They gave the same chance for winning a million in a lottery as inheriting a million — twelve million to one. The best odds they gave were through owning a small business — a thousand to one. What struck me as odd were the chances of saving a million at $800/month for 30 years at 7.1% interest — one million to one. Surely this can’t be right. I have to admit $800/month would be impossible for me right now. Still those odds seem depressingly steep. Perhaps my sampling is skewed but I seem to know a lot of professionals who should be able to pull this off if they really wanted too. Unfortunately the paper did not go into why this would be the case. So what are the real odds of attaining a modicum of financial independence just through saving? (A million ain’t what is used to be so I’m not sure if that goal is very meaningful anymore.)”

I didn’t see the article, but from what you say, it certainly appears screwy. Why would the odds of inheriting $1 million be 12 million to one? That would suggest that only 23 Americans inherited $1 million this year.

And, yes, saving $800 a month for 30 years (and seven months) at 7.1% will absolutely make you a million — if you can do it after tax, and if you actually do it. (It will take you 37 years if you can only earn 5% after tax.)

The “real” odds of attaining a modicum of financial independence just through saving are excellent. But you really have to save.

Say you put $2,000 a year into a Roth IRA via a couple of index funds starting at age 25 and keep doing it until you’re 70. If the funds compound at 9% a year, you’ve accumulated an extra $1 million and change after tax to supplement your Social Security.

Of course, there’s inflation. No way is the stock market likely to beat inflation by 9% a year. But 6% is possible, if still somewhat optimistic. At 6%, the Roth IRA would grow to $425,000. Show me a 70-year-old who wouldn’t appreciate a $425,000 nest egg to help her or him through the next 30 years.

And that’s just $2,000 a year.

John Stockman: “I was intrigued by your description of I-Bonds, but when I contacted Schwab and Ameritrade they advised that I could not purchase them in their IRA or 401K as they were ‘Bank Products.'”

Right. Savings Bonds are not “bonds” in the traditional sense. You don’t buy and sell them in the open market, you buy them from a bank (or, now, with a credit card from the Treasury). Ask your broker to buy you TIPS — Treasury Inflation-Protected Securities. For more on the difference between I-Bonds and TIPS, click here. For everything you’d want to know about Savings Bonds, go to

Russell Turpin: “Stock market and real estate prices make me swoon. But CDs are a lousy investment for a young man. (Well, OK, almost middle-aged guy.) What about convertible bonds? (Background: This question pertains to assets outside my retirement accounts, 95% of which are in equity mutual funds. I figure this is appropriate, almost regardless of my own personal view of the current market, given that their use is twenty years away.)”

Convertibles have the safety of bonds and at least some of the potential appreciation of stocks. Of course, you and I are not the first to notice this, and so they are priced accordingly. The interest you earn is pretty modest unless the risk is high and/or the conversion price way above the current stock price.

And because you are seeking an investment for your taxable account, both CD’s and convertible bonds are kind of rotten, because a good chunk of the interest would wind up going to Uncle Sam, not Cousin Russell.

If I were you, I would consider a steady program of periodic investments in a couple of index funds. Or, if you have a taste for it, the acquisition of a portfolio of your own, geared toward long-term, tax-deferred capital gains. Being one to go from the sublime to the ridiculous, I might include some Microsoft (MSFT), some McKesson (MCK), some Canada Southern Petroleum (CSPLF), some Criimi Mae (CMM), a little Calton (CN), and — from the ridiculous to the preposterous — 100 shares of Borealis (BOREF). And just wait five years and see where they are. If they’re much lower, you’ll hate me, but have the satisfaction of knowing that I lost even more than you did. If they’re much higher, you will have long since forgotten who suggested them. (Do not “pay up” for these stocks. They are currently selling for around $71, $25, $6.50, $1.56, $4.50 and $3.50, respectively.)


Comments are closed.