Become a millionaire. It’s easier than you think

TheJman

Expert Member
Joined
Jul 16, 2011
Messages
3,668
How to get to a million

Investing is often presented as something complicated. Trying to make sense of the range of products available, the different asset classes, and the relationship between risk and return can be daunting to a lot of people.

In reality, however, the basic principles are extremely simple:

Start as early as possible. Save as much as you can. Be patient, and let time work in your favour.
Read: Don’t let the markets fool you

To illustrate this, Morningstar put together some data on what it takes to save your way to R1 million. Using different monthly contributions and rates of return, it calculated how long it would take an investor to become a millionaire.

Show me the money

“The analysis used a range of return outcomes varying from the current return investors can achieve by putting their money in a bank account up to a maximum of 17% per annum,” explains Victoria Reuvers, senior portfolio manager at Morningstar Investment Management. “Realistically, many investments can deliver higher returns in short periods of time, but 17% per annum was considered a large annual return and a prudent maximum, as delivering such a strong outcome would require some meaningful risk-taking.”

The findings are presented in the table below.


Source: Morningstar
The first thing to note from this analysis is that even at just R200 a month, and at the lowest rate of return, it is possible to become a millionaire within the average South African’s lifespan. It would take just under 63 years to get there, which is almost exactly equivalent to the country’s current life expectancy.

These numbers are even more powerful if one uses the return an investor could reasonably expect from a local balanced fund. It is fair to assume that these unit trusts can deliver a 10% return per year over the long term.

If someone contributes just R500 per month and receives that rate of return, it would take less than 30 years for them to become a millionaire. That is well within a normal working lifetime.
This shows that at an undemanding monthly contribution and at an extremely realistic potential rate of return, becoming a millionaire is simply a matter of time. If an investor keeps up the monthly contributions and shows the necessary patience, it is well within reach.

Size matters

The second observation is perhaps even more powerful. It is illustrated by the column furthest to the right, which considers what happens when an investor makes contributions of R10 000 per month.

At this contribution rate, it would take just seven years to reach R1 million, even at the measly return of just 5%. But more significant than that is that the higher rates of return do not get you to R1 million exponentially faster.

Doubling the rate of return from 5% to 10% only shaves nine and a half months off the time it takes to become a millionaire. Tripling it to 15% speeds up the process by just one and a half years.
This is something that a lot of investors fail to appreciate. Almost always, the main focus in any investment discussion is on the return. That is what leads to extreme views such as thinking that you have to take all your money offshore, or you should invest in a particular stock or sector because it is the next ‘big thing’.

However, the return you are able to get on your investment is not the most important factor when determining whether or not you reach your goals. If you want to get to R1 million, the surest way of speeding up that process is to save more.

Read: How much you save is more important than the return you get

“Yes, performance is important, particularly when monthly contributions are small,” Reuvers notes. “But what this exercise shows is that, more important than performance, is a consistent contribution and the size of the monthly contribution.”
This is so important to teach the power of saving, they really should run workshops for everyone, regardless of age or income bracket.

I wish they taught this stuff to me in school..
 

TheJman

Expert Member
Joined
Jul 16, 2011
Messages
3,668
Yeah, it's easier than you may think, because a million is worth less than you may think...
See a lot of comments like that on the website too... Let's just keep in mind the average South African... and the average take home salary... a million may not be a lot to you, but it's a dream for some
 

Kosmik

Honorary Master
Joined
Sep 21, 2007
Messages
20,776
Basically all the boomers who bought a house for R100 000 in the 90s is now a millionaire
Sure but you try sell a property at the new "valuation" and see what you can buy from the proceeds.
 

DarkDragon

Well-Known Member
Joined
Jan 9, 2017
Messages
138
The average South African also aren't financial savvy and can blow a million pretty quickly.
 

ToxicBunny

Honorary Master
Joined
Apr 8, 2006
Messages
89,045
All you need is a 3 Series bmw, a pozzie in kyalami, 2 swords, and a lawsuit for physical assault and you're broke.
Nah... the pozzie in Kyalami is a step too far for the new millionaire.

3 Series, 2 swords and a chow is all you can get for your bar these days.
 

garp

Executive Member
Joined
Aug 2, 2004
Messages
8,247
Sure but you try sell a property at the new "valuation" and see what you can buy from the proceeds.
This is true. R1 million is just the new R100k. And a few decades before that R10k was a fortune. My dad earned R100 per week in the 1960's and that was considered a high income. This is the inevitable effect of inflation, made worse more recently in SA by a depreciating currency.
 

Urist

Expert Member
Joined
Mar 20, 2015
Messages
3,341
Investing R4k per month to have a bar in 10 years and 2 in 20, might help with retirement... and is better than just leaving it in the bank.
This is true. R1 million is just the new R100k. And a few decades before that R10k was a fortune. My dad earned R100 per week in the 1960's and that was considered a high income. This is the inevitable effect of inflation, made worse more recently in SA by a depreciating currency.
We'll see real inflation once govt takes over the Reserve Bank
the money for the R900 000 000 000 water plan and eskom debt needs to come from somewhere. Thin air might be as good a place as any for the ANC.
 

Kosmik

Honorary Master
Joined
Sep 21, 2007
Messages
20,776
Investing R4k per month to have a bar in 10 years and 2 in 20, might help with retirement... and is better than just leaving it in the bank.

We'll see real inflation once govt takes over the Reserve Bank
the money for the R900 000 000 000 water plan and eskom debt needs to come from somewhere. Thin air might be as good a place as any for the ANC.
Considering they've defaulted on SAA now, it will be interesting because people will finally realize, there is no more money.
 

cguy

Executive Member
Joined
Jan 2, 2013
Messages
5,728
Urgh “millionaire” usually refers to USD millionaires. “Unit of currency” millionaires is a pointless definition - see Zim or Japan... or SA.

Sure it’s money, but flinging around “millionaire”, for small unit currencies in countries with high inflation, while not even mentioning inflation is somewhat disingenuous.

Also, not sure what was being smoked when this was written:
This is something that a lot of investors fail to appreciate. Almost always, the main focus in any investment discussion is on the return. That is what leads to extreme views such as thinking that you have to take all your money offshore, or you should invest in a particular stock or sector because it is the next ‘big thing’.

However, the return you are able to get on your investment is not the most important factor when determining whether or not you reach your goals. If you want to get to R1 million, the surest way of speeding up that process is to save more.
 

zulucat

Senior Member
Joined
Dec 7, 2010
Messages
653
I've been a millionaire before - it's overrated. Live a healthy, fulfilling, happy and meaningful life - money isn't everything - death equalises everyone.
 

Papa Smurf

Honorary Master
Joined
Aug 2, 2016
Messages
20,250
Basically all the boomers who bought a house for R100 000 in the 90s is now a millionaire
you also need to make sure your property isn't valued too high either if you wanna jump onto the RSA Pension payout each month when you hit 60
If your property is worth more than R1 115 400 (R2 230 800 if married) then you do not qualify for the free R1780 per month from Government

 
Top