$300,000 is halfway to $1,000,000 (proven)
I know what you are thinking. $300,000 is not half of $1,000,000. It is 30% to one million. Well, in the investing world, actually it is truly half way to $1 million. How? You may have heard of this thing called compound interest. Where money earns more money which earns you more money which earns you more money. Visualizing how $300,000 is halfway to $1,000,000 really shows the power of compounding.
Let’s take a couple investing $30,000 per year. Let’s also assume a 7% annual rate of return. It will take them 3.10 years to reach $100,000 invested. It will take an additional 2.56 years to reach $200,000 invested. Then another 2.18 years to reach $300,000 invested. Notice how each $100,000 invested gets progressively easier & less time to reach it? Once we get to going from $900,000 to $1,000,000 it will only take them 1.07 years. Wow. Compounding is really the 8th wonder of the world.
So how is $300,000 halfway to $1,000,000?
To prove this, let’s look at investing $10,000 per year.
To go from $0-$300,000 it will take 7.84 + 5.10 + 3.78 = 16.72 years
To go from $300,000-$1,000,000 it will take 3.01 + 2.50 + 2.14 +1.87 +1.66 +1.49 + 1.35 = 14.02 years
When investing $10,000 per year at 7% rate of return, it will take 16.72 years to get to $300,000 but only 14.02 years to go from $300,000 to $1,000,000.
To go from $0-$1,000,000 it will take 30.74 years.
16.72/30.74 = 54.3%
This means when you get to $300,000 invested, you are 54.3% of the way to $1,000,000!
So, mathematically speaking, in terms of time spent, getting to $300,000 invested means you are halfway to $1,000,000!
The more you invest, the faster you will reach the $300,000 mark, then onto the $1,000,000 mark!1
There’s another important lesson to be learned here: Don’t be discouraged if it takes you longer than you hoped to save your first $100k. In terms of time, in all yearly amounts invested, it takes the longest time! So do not be discouraged if you are just starting out. Use this post as a reminder that every $100,000 invested gets progressively easier!
In real life, it is not as simple as this. There may be years where the market is up 24% & you hit the next $100,000 mark faster than expected. There may also be years where the market is down 17% & it takes more time to reach the next $100,000 mark.
Thanks for reading & I hope you found value in this post.
-Kolin
If you are looking to get organized on your finances, read this post: Getting Your Finances Organized As A Newly Married Couple
Disclaimer: The content provided in this blog post is for educational purposes only and should not be considered as financial advice. While every effort has been made to provide accurate and up-to-date information, the content on Money Matters For Two is based on personal research, opinions, and experiences. The financial landscape can change rapidly, and what may be applicable at the time of writing may not necessarily be applicable in the future.
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The $300,000 to $1,000,000 theory gets less than halfway as you invest more each year. For example, if you are investing $50,000/year then getting to $300,000 is only 40% of the way to $1,000,000! But hey, still pretty cool to know that $300,000 is closer to $1,000,000 than you think!
Thanks, great article!