Carrie Schwab Pomerantz

Dear Carrie: How do I need to invest to make $20 million by retirement? --A Reader

Dear Reader: Thank you for the provocative question! Even though it may seem far-fetched to many, it also raises some interesting issues for any investor.

To begin to answer your question, let's start with some numbers. Assuming that you're young and not planning to retire for 40 years, that you're starting with nothing besides the desire to be rich, and that you can earn an average annual return of 7 percent, you would need to invest $100,000 every year for the next four decades to arrive at $20 million.

Given this, the slow but steady approach to building wealth -- starting early, saving 10 percent to 15 percent of your salary, creating a diversified portfolio, paying attention to investment expenses, and selecting the right asset allocation for your stage in life and your goals -- is probably not going to get you to your goal. I'm not saying it's impossible, but few people have the wherewithal to sock away $100,000 per year. And a consistent 7 percent return is far from a sure thing. The reality is that traditional investing strategies are designed to help people build wealth -- but not build great wealth.

In other words, to get truly rich through investing, you would need to "swing for the fences." Invest every penny you have, for example, in the next Google or Microsoft or Facebook. It would be a high-risk, high-reward strategy -- and, of course, you'll need to be quite savvy to identity the next Google, Microsoft or Facebook. I'd say your chances (i.e., anybody's chances) are incredibly slim.


So, how can you amass a fortune? Well, you can start with a fortune (the "it takes money to make money" theory). Or you could become a star in professional athletics, win several gold medals at the next Olympics, or make your fortune as a very famous actor or entertainer. Needless to say, these are the longest of long shots -- and even if you knew today you were gifted in some way, you'd still need a lot of hard work as well as some lucky breaks to turn that gift into riches.


Carrie Schwab Pomerantz

Carrie Schwab Pomerantz is a Motley Fool contributor.

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